TSX: PNE
WWW.PINECLIFFENERGY.COM
Long-term Value Focus
Annual Report 2024
MESSAGE TO SHAREHOLDERS
2024
TSX: PNE
WWW.PINECLIFFENERGY.COM
With the onset of winter, we experienced improved AECO natural gas prices, and as a result, the fourth quarter of 2024
generated more funds flow for Pine Cliff than Q3 2024. From a financial standpoint, our fourth quarter and 2024 annual
highlights include:
Fourth Quarter and Year-end 2024 Summary
•
Generated $8.6 million ($0.02 per basic and fully diluted per share) and $38.0 million ($0.11 per basic and per fully diluted
share) of adjusted funds flow1 for the three months and year ended December 31, 2024, compared to $9.7 million ($0.03
per basic and fully diluted share) and $58.7 million ($0.17 per basic and $0.16 per fully diluted share) for the same periods
in 2023;
•
Production averaged 22,738 Boe/d2 and 23,248 Boe/d3 during the three months and year-ended December 31, 2024,
representing a 6% increase and 13% increase from the comparable periods in 2023;
•
Proceeds from dispositions totaled $10.5 million in 2024, which included the sale of a non-operated working interest in
underutilized gas processing infrastructure in the fourth quarter;
•
Capital expenditures totaled $8.9 million in 2024, including abandonment and reclamation expenditures of $6.4 million;
•
Paid dividends of $5.4 million ($0.01 per basic and fully diluted share) and $25.6 million ($0.07 per basic and fully diluted
share) during the three months and year ended December 31, 2024, compared to $11.6 million ($0.03 per basic and fully
diluted share) and $46.0 million ($0.13 per basic and fully diluted share) for the same periods in 2023; and
•
The NPV of our reserves (BTAX 10%)1 increased across all categories, rising by 7.5% on a PDP1 basis and 15% on a 2P1
basis, as the impact of additional booked locations and technical revisions offset our 2024 production and lower natural
gas prices.
Reserves
We were pleased with our independent reserve evaluation results this year. The acquisition we completed in December
2023 added valuable low decline liquids production and drilling inventory to our portfolio. In addition, that purchase
increased the NPV of our reserves enough to offset our 2024 production, despite us not drilling a well in 2024.
PDP reserves were up 8.5% prior to accounting for production, as positive technical revisions in our Central Alberta
business unit more than offset the impact of lower gas prices. After production, our PDP was down 7.5% from the end
of 2023, while our 2P reserves were up 5.6%. This reflects our ability to book additional two-mile locations from the
strategic land swaps we completed throughout the year and improvements in the type curves based on offsetting results
in the area. We now have identified 18.4 net two-mile locations in the Sundre area, a significant inventory at Pine Cliff’s
measured pace of development.
The 2P reserves also include limited booking for our emerging Basal Quartz play, with two wells included as booked
locations at the end of 2024. We are very interested in exploiting this oil-dominated zone and our internal technical
work over the past year has identified almost 40 prospective locations. Pine Cliff is fortunate to also control our own
gas gathering infrastructure in this area, which is strategic to the growth of this emerging play.
Dividend
Despite a challenging natural gas environment in 2024, we managed to deliver an all-in payout ratio of less than 100%,
which includes payments to lower our term debt and fund our retirement obligations. This is in part due to our effective
hedge program that delivered Pine Cliff a realized natural gas price of C$2.24/Mcf, 53% above the average AECO Daily
5A gas price of C$1.46/Mcf for the year. We have declared a $0.005 monthly dividend for March and will continue to
closely monitor our total payout ratio using forward strip commodity prices for the year combined with our existing
hedge positions.
2025 Outlook
Average production in 2024 of 23,248 Boe/d3 was in line with our annual guidance range of 23,250 – 23,750 Boe/d4.
Note that we lost ~ 630 Boe/d of production through the year largely because of maintenance-related outages and cold
weather.
MESSAGE TO SHAREHOLDERS
2024
TSX: PNE
WWW.PINECLIFFENERGY.COM
Meanwhile, we managed to spend less, with maintenance and asset retirement spending of $8.9 million coming in below
our $12 million budget.
We continue to evaluate our spending plans for 2025 as we think that there is a compelling case for strategically
developing our land base, but the pace needs to fit in the context of the prevailing commodity price environment, and
by extension, our ability to deploy cash flow. We have not made any final CAPEX decisions for 2025, but it is our current
intent to resume a focused drilling program in the back half of the year. We will continue to be flexible and patient in
our capital allocation decisions, both of which are made possible by the low decline nature of our production base. As
always, our final capital decisions will prioritize cash flow growth over production. In the interim, we will maintain our
base production with capex limited to maintenance and reclamation spending.
Data Centre Announcement
On January 15, 2025, Pine Cliff announced a natural gas supply agreement with a private Canadian company for an
Alberta data centre development. Data centres are expected to be a significant source of incremental gas demand
growth in the Province of Alberta, and Pine Cliff is proud to be one of the first natural gas producers to announce such
an agreement to develop an “off-grid” solution to this growing energy demand source.
In this agreement, Pine Cliff is committed to supplying between 3.2 MMcf/d5 and 4.8 MMcf/d5 of natural gas for an initial
term of 25 years, for which we will receive a rolling 12-month price indexed to NYMEX. While these production volumes
are relatively small in the context of our total natural gas production (3.0% to 4.4% of fourth quarter volumes), these
types of projects act as incremental market diversification without having to pay hedging or transportation costs to get
access to US market pricing. We believe that Pine Cliff has other sites that could be suitable for similar development.
Hedging Update
We continue to believe that hedging is an important part of our marketing strategy to help protect our cash flow which
is used to support our business and shareholder distributions. The impact of this strategy was critical in 2024, as our
hedges positions helped deliver a Pine Cliff realized natural gas price that was a 53% premium to the AECO 5A
benchmark. In addition to using physical hedges, our marketing group works closely with our operations team to
determine the best strategies to utilize our three pipelines that take natural gas production out of the Province of
Alberta.
Today, using our production in the fourth quarter of 2024 as a benchmark, we have approximately 35% of Pine Cliff’s
natural gas volumes hedged at C$2.91/Mcf. On the oil side, we currently have 31% of our fourth quarter production
volumes hedged at US$68.92/Bbl.
Webcast
We will host our quarterly webcast regarding our Q4 and annual results at 9:00 am MT on Thursday March 6th.
Participants can access the live webcast via PNE Q4 2024 and Annual Year End Results Webcast, or through the Pine
Cliff website at http://www.pinecliffenergy.com.
Outlook
We are now in our 14th year managing our unique business model. We have experienced many ups and downs to
commodity prices, although the current commodity and currency volatility associated with trade tariff speculation is a
new circumstance for us. We know that our job is to continue to protect your investment in Pine Cliff and allocate capital
in what we feel are the optimal ways to do that. With this type of volatility, maintaining financial flexibility is essential
and will continue to be a key focus for our team.
We remain committed to making all our capital and operating decisions with a sharp focus on adding value on a per
share basis over a long period of time. Our management team believes that the back half of 2025 should see improved
AECO prices with the launch of LNG Canada, currently scheduled for this summer. We believe that natural gas is playing
a critical role in the growing global demand for energy and will continue to play a leading role in the rise of lower carbon
MESSAGE TO SHAREHOLDERS
2024
TSX: PNE
WWW.PINECLIFFENERGY.COM
energy use. Our strategy to be positioned for long-term exposure to the Western Canada natural gas market has not
changed, but we have added to our liquid production in the past few years to provide some stability to our funds flow.
Thank you for your ongoing support.
Yours truly,
Phil Hodge
President and Chief Executive Officer
March 5, 2025
1Disclosure Note: Please refer to Pine Cliff’s Website for Reader Advisories regarding forward looking information, non-GAAP measures, oil and gas measurements,
definitions as this press release is subject to the same cautionary statements as set out therein.
2 Comprised of 108,212 Mcf/d natural gas, 3,170 Bbl/d NGLs and 1,533 Bbl/d light and medium oil.
3 Comprised of 110,834 Mcf/d natural gas, 3,239 Bbl/d NGLs and 1,537 Bbl/d light and medium oil.
4 Comprised of approximately 79% natural gas, 14% NGLs and 7% light and medium oil.
5 Converted from the Supply Agreement of 33 million cubic meters per year and 50 million cubic meters per year.
RESERVES INFORMATION
2024
4
PINE CLIFF ENERGY LTD.
Reserves Information
McDaniel & Associates Consultants Limited (“McDaniel”) was engaged to prepare evaluations of the reserves of Pine Cliff Energy
Ltd. (“Pine Cliff” or the “Company”). The evaluations of petroleum and natural gas reserves were conducted in accordance with
National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) with the effective date of December 31,
2024. The gross reserves in the following tables represent Pine Cliff’s ownership interest before royalties and before consideration
of the Company’s royalty interest reserves. As defined in NI 51-101, proved reserves are those reserves that can be estimated with
a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated
proved reserves. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is
equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus
probable reserves. Tables may not add due to rounding.
Where amounts are expressed on a Boe basis, natural gas volumes have been converted to oil equivalence at six Mcf per one Bbl.
Where amounts are expressed in Mcfe, natural gas liquids and oil volumes are converted to one Mcfe using the same ratio. The terms
Boe and Mcfe may be misleading, particularly if used in isolation. This conversion ratio is based on an energy equivalency conversion
method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Highlights of Pine Cliff’s reserves for the 2024 year include:
Net present value for proved plus probable ("P+P") reserves of $548.1 million, discounted at 10%, an increase of $71.3
million, or 15%, from December 31, 2023, primarily as a result of the extensions, improved recoveries and lower lease
operating expenses, all offsetting the impact of lower natural gas benchmark pricing;
Pine Cliff increased its 2024 P+P reserves by 13.5 MMBoe prior to adjusting for 2024 production, representing a reserve
replacement ratio of 158%. 15.1 MMBoe was added by extensions, improved recoveries and lower operating expenses;
Remaining P+P reserves of 94.1 MMBoe (70% conventional natural gas and coal bed methane) at December 31, 2024
increased 5.5% from 89.2 MMBoe at December 31, 2023 a result of the extensions, improved recoveries and lower lease
operating expenses; and
Approximately 64% of total reserve volumes are classified as total proved reserves, 36% are classified as probable reserves.
Pine Cliff’s Reserves
McDaniel has used a three-consultant average price (McDaniel, GLJ & Sproule) forecast, resulting in a price forecast of $2.36 and
$3.33 per MMBtu for AECO natural gas and US$71.58 and US$74.48 per Bbl for WTI oil in 2025 and 2026 respectively.
Summary of Remaining Working Interest Reserves, as of December 31, 2024
Reserve Category
Oil1,2
Natural Gas
Liquids
Conventional
Natural Gas
Coal Bed
Methane
Oil
Equivalent
MBbl
MBbl
MMcf
MMcf
MBoe
Proved
Developed Producing
2,661.8
5,651.6
198,301.1
15,209.5
43,898.6
Undeveloped
918.9
3,516.9
29,487.6
-
9,350.3
Total Proved
3,580.7
9,168.5
227,788.7
15,209.5
53,248.9
Probable
1,971.6
8,250.0
111,874.1
4,218.5
29,570.3
Total Proved plus Probable
5,552.4
17,418.5
339,662.8
19,428.0
82,819.3
1 Amounts may not add due to rounding.
2 Oil includes light and medium and heavy oil. Light and medium oil represents 100 per cent of total proved and P+P reserves.
RESERVES INFORMATION
2024
5
PINE CLIFF ENERGY LTD.
Summary of Net Present Values of Future Net Revenue, Before Income Taxes, as of December 31, 2024
Discounted at (% per year)
($ millions)
0%
5%
10%
15%
20%
Reserve Category1
Proved
Developed Producing
(78.5)
216.7
229.8
206.9
183.4
Undeveloped
187.2
108.7
67.2
43.2
28.2
Total Proved
108.7
325.4
297.0
250.1
211.5
Probable
645.4
381.3
251.1
177.4
131.3
Total Proved plus Probable
754.1
706.7
548.1
427.5
342.9
1 Amounts may not add due to rounding.
Reconciliation of Gross Reserves by Principal Product Type, as of December 31, 2024
Reserve Reconciliation Company Gross1
Oil2
Natural Gas Liquids
Natual Gas3
Oil Equivalent
MBbl
MBbl
MMcf
MBoe
Total Proved
December 31, 2023
5,152.0
11,126.2
274,303.8
61,995.5
Extension
218.7
1,212.5
7,975.9
2,760.5
Technical Revisions
(554.3)
229.9
36,061.3
5,685.8
Dispositions
-
(208.2)
(990.3)
(373.3)
Economic Factors
(4.9)
(147.6)
(9,500.1)
(1,735.9)
Production
(562.6)
(1,185.4)
(40,565.4)
(8,508.9)
December 31, 2024
4,248.9
11,027.4
267,285.2
59,823.8
Total Proved plus Probable
December 31, 2023
8,134.7
17,802.3
379,318.3
89,156.7
Extension
289.6
4,693.9
30,130.3
10,005.2
Technical Revisions
(1,178.9)
996.1
45,071.2
7,329.1
Dispositions
-
(870.9)
(4,256.8)
(1,580.3)
Economic Factors
0.8
(162.2)
(12,713.5)
(2,280.3)
Production
(562.6)
(1,185.4)
(40,565.4)
(8,508.9)
December 31, 2024
6,683.7
21,273.8
396,984.1
94,121.5
1 Amounts may not add due to rounding.
2 Oil includes light and medium and heavy oil. Light and medium oil represents 100 per cent of total proved and P+P reserves.
3 Natural gas includes conventional natural gas and coal bed methane. Conventional natural gas represents 90 per cent total proved
and P+P reserves.
RESERVES INFORMATION
2024
6
PINE CLIFF ENERGY LTD.
Commodity Prices
The commodity prices used in the above calculations of reserves are as follows at December 31, 2024:
WTI Crude
Oil1
Edmonton
Light Crude
Oil1
Edmonton
Cond &
Natural
Gasolines1
Edmonton
Ethane1
Edmonton
Propane1
Edmonton
Butanes1
Alberta
AECO Spot
Price1
$US to $C
Exchange
Rate1
Year
$US/Bbl
$C/Bbl
$C/Bbl
$C/Bbl
$C/Bbl
$C/Bbl
$C/MMBtu
2025
71.58
94.79
100.14
7.54
33.56
51.15
2.36
0.712
2026
74.48
97.04
100.72
10.76
32.78
49.99
3.33
0.728
2027
75.81
97.37
100.24
11.32
32.81
50.16
3.48
0.743
2028
77.66
99.80
102.73
12.02
33.63
51.41
3.69
0.743
2029
79.22
101.79
104.79
12.26
34.30
52.44
3.76
0.743
2030
80.80
103.83
106.86
12.51
34.99
53.49
3.83
0.743
2031
82.42
105.91
109.01
12.77
35.69
54.56
3.91
0.743
2032
84.06
108.03
111.19
13.03
36.40
55.65
3.99
0.743
2033
85.74
110.19
113.42
13.30
37.13
56.76
4.07
0.743
2034
87.46
112.39
115.69
13.57
37.87
57.90
4.15
0.743
2035
89.21
114.64
118.00
13.84
38.63
59.05
4.23
0.743
2036
90.99
116.93
120.36
14.12
39.40
60.24
4.32
0.743
2037
92.81
119.27
122.77
14.40
40.19
61.44
4.40
0.743
2038
94.67
121.65
125.23
14.69
41.00
62.67
4.49
0.743
2039
96.56
124.09
127.73
14.98
41.82
63.92
4.58
0.743
Thereafter
+2%/year
+2%/year
+2%/year
+2%/year
+2%/year
+2%/year
+2%/year
0.743
1 Source: Average of three consultant price forecasts, effective January 1, 2025 (McDaniel, GLJ Petroleum Consultants Ltd. and
Sproule Associates Limited).
Please refer to the attached Management’s Discussion and Analysis for Reader Advisories regarding forward-looking information, non-
GAAP measures and oil and gas measurements and definitions. This Reserves Information should be read in conjunction with the audited
consolidated financial statements of Pine Cliff Energy Ltd. together with Management’s Discussion and Analysis and Annual Information
Form for the year ended December 31, 2024, which can be found on www.sedarplus.ca and is subject to the same cautionary statements
as set out therein.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
7
PINE CLIFF ENERGY LTD.
This Management’s Discussion and Analysis (“MD&A”) is a review of the operations and current financial position of Pine Cliff Energy
Ltd. (“Pine Cliff” or the “Company”) for the year ended December 31, 2024. This MD&A is dated and based on information available
as at March 5, 2025 and should be read in conjunction with the audited consolidated financial statements for the year ended
December 31, 2024 and 2023 (“Financial Statements”). The Financial Statements have been prepared in accordance with
International Accounting Standards (“IFRS”) issued by the International Accounting Standards Board. Additional information
relating to the Company, including the Company’s annual information form (“AIF”), may be found on www.sedarplus.ca and by
visiting Pine Cliff’s website at http://www.pinecliffenergy.com.
Pine Cliff is a dividend-paying company headquartered in Calgary, Alberta, Canada. The common shares of the Company (“Common
Shares”) are listed on the Toronto Stock Exchange (“TSX”) under the symbol “PNE” and trade on the OTC Markets Group (“OTCQX”)
under the symbol “PIFYF”.
READER ADVISORIES
This MD&A contains financial measures that are not defined under IFRS and forward-looking statements. Please refer to the sections
titled “NON-GAAP MEASURES” and “FORWARD LOOKING INFORMATION”.
Other Measurements
All amounts herein are presented in Canadian dollars unless otherwise specified. All references to $CAD or $ are to Canadian dollars
and monetary references to $US are to United States dollars.
Please refer to the section titled “GLOSSARY” for measurements and abbreviations that may be used in the MD&A.
Natural gas liquids (“NGLs”) and oil volumes are recorded in barrels of oil (“Bbl”) and are converted to a thousand cubic feet
equivalent (“Mcfe”) using a ratio of one (1) Bbl to six (6) thousand cubic feet. Natural gas volumes recorded in thousand cubic feet
(“Mcf”) are converted to barrels of oil equivalent (“Boe”) using the ratio of six (6) thousand cubic feet to one (1) Bbl. This conversion
ratio is based on energy equivalence primarily at the burner tip and does not represent a value equivalency at the wellhead. The
terms Boe or Mcfe may be misleading, particularly if used in isolation.
2024 AND FOURTH QUARTER 2024 RESULTS
Results from 2024 are as follows:
•
Generated $8.6 million ($0.02 per basic and fully diluted per share) and $38.0 million ($0.11 per basic and per fully diluted
share) of adjusted funds flow for the three months and year ended December 31, 2024 compared to $9.7 million ($0.03 per
basic and fully diluted share) and $58.7 million ($0.17 per basic and $0.16 per fully diluted share) for the same periods in
2023;
•
Production averaged 22,738 Boe/d and 23,248 Boe/d during the three months and year-ended December 31, 2024,
representing a 6% increase and 13% increase from the comparable periods in 2023;
•
Proceeds from dispositions totaled $10.5 million in 2024, including the sale of a non-operated working interest in
underutilized gas processing infrastructure in the fourth quarter;
•
Capital expenditures totaled $8.9 million in 2024, including abandonment and reclamation expenditures of $6.4 million and
maintenance capital of $2.5 million;
•
Paid dividends of $5.4 million ($0.01 per basic and fully diluted share) and $25.6 million ($0.07 per basic and fully diluted
share) during the three months and year ended December 31, 2024, compared to $11.6 million ($0.03 per basic and fully
diluted share) and $46.0 million ($0.13 per basic and fully diluted share) for the same periods in 2023; and
•
Generated net loss of $5.6 million ($0.02 per basic and fully diluted share) and $21.4 million ($0.06 per basic and fully
diluted share) for the three months and year ended December 31, 2024, compared to net income of $0.8 million ($0.00 per
basic and fully diluted share) and $9.1 million ($0.03 per basic and $0.03 per fully diluted share) for the comparable periods
in 2023.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
8
PINE CLIFF ENERGY LTD.
SELECTED ANNUAL FINANCIAL INFORMATION
Year ended December 31,
2024
2023
2022
($000s, unless otherwise indicated)
FINANCIAL1
Commodity sales (before royalties)
190,118
188,852
306,208
Commodity sales (net of royalties)
174,692
168,889
270,448
Cash provided by operating activities
23,795
66,627
150,452
Adjusted funds flow2
38,017
58,687
163,206
Per share – Basic ($/share)
0.11
0.17
0.47
Per share – Diluted ($/share)
0.11
0.16
0.45
Net income (loss)
(21,446)
9,121
108,939
Per share – Basic ($/share)
(0.06)
0.03
0.31
Per share – Diluted ($/share)
(0.06)
0.03
0.30
Total assets
381,251
477,072
375,053
Total liabilities
326,927
377,144
241,325
Capital expenditures
2,529
20,966
29,077
Acquisitions
645
109,326
1,119
Dispositions
(10,519)
(379)
(2,649)
Dividends
25,597
46,015
23,574
Per share – Basic and Diluted ($/share)
0.07
0.13
0.07
Positive net cash (net debt)2
(62,323)
(71,679)
55,913
Total non-current financial liabilities3
39,822
48,578
2,296
Weighted average common shares outstanding (000s) - Basic
357,375
354,057
346,443
Weighted average common shares outstanding (000s) - Diluted
357,375
359,375
360,033
OPERATIONS
Production
Natural gas (Mcf/d)
110,834
107,471
109,801
NGLs (Bbl/d)
3,239
1,493
1,459
Crude oil (Bbl/d)
1,537
1,255
1,256
Total (Boe/d)
23,248
20,660
21,015
Total (Mcfe/d)
139,488
123,960
126,090
Realized commodity sales prices
Natural gas ($/Mcf)
2.24
2.99
5.43
NGLs ($/Boe)
41.62
53.51
72.38
Crude oil ($/Bbl)
89.07
92.29
108.79
Total ($/Boe)
22.34
25.04
39.92
Netback ($/Boe)
Operating netback2
6.67
8.57
22.41
Corporate netback2
4.48
7.77
21.28
Netback ($/Mcfe)
Operating netback2
1.11
1.43
3.74
Corporate netback2
0.75
1.30
3.55
1 Includes results for acquisitions and excludes results for dispositions from the closing dates.
2 This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.
3 Includes lease liabilities and Term Loan, as defined herein.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
9
PINE CLIFF ENERGY LTD.
Three months ended December 31,
Year ended December 31,
2024
2023
2024
2023
($000s, unless otherwise indicated)
FINANCIAL
Commodity sales (before royalties)
47,083
45,465
190,118
188,852
Cash provided by operating activities
518
16,559
23,795
66,627
Adjusted funds flow1
8,608
9,700
38,017
58,687
Per share – Basic ($/share)1
0.02
0.03
0.11
0.17
Per share – Diluted ($/share)1
0.02
0.03
0.11
0.16
Net income (loss)
(5,607)
841
(21,446)
9,121
Per share – Basic and Diluted ($/share)
(0.02)
0.00
(0.06)
0.03
Capital expenditures
32
3,616
2,529
20,966
Acquisitions
86
109,014
645
109,326
Dispositions
(6,901)
(118)
(10,519)
(379)
Dividends
5,371
11,567
25,597
46,015
Per share – Basic and Diluted ($/share)
0.01
0.03
0.07
0.13
Net debt1
(62,323)
(71,679)
(62,323)
(71,679)
Weighted-average common shares outstanding (000s)
Basic
358,086
355,969
357,375
354,057
Diluted
358,086
359,262
357,375
359,375
OPERATIONS
Production
Natural gas (Mcf/d)
108,212
110,499
110,834
107,471
NGLs (Bbl/d)
3,170
1,690
3,239
1,493
Crude oil (Bbl/d)
1,533
1,347
1,537
1,255
Total (Boe/d)
22,738
21,454
23,248
20,660
Realized commodity sales prices
Natural gas ($/Mcf)
2.30
2.59
2.24
2.99
NGLs ($/Boe)
40.33
48.51
41.62
53.51
Crude oil ($/Bbl)
88.27
93.15
89.07
92.29
Combined ($/Boe)
22.51
23.03
22.34
25.04
Netback ($/Boe)
Commodity sales
22.51
23.03
22.34
25.04
Processing and gathering
0.66
0.75
0.65
0.68
Royalty expense
(2.20)
(2.63)
(1.81)
(2.65)
Transportation expenses
(1.42)
(1.45)
(1.39)
(1.43)
Operating expenses
(13.24)
(13.66)
(13.12)
(13.07)
Operating netback ($/Boe)1
6.31
6.04
6.67
8.57
General and administrative expenses
(1.11)
(1.03)
(1.21)
(0.99)
Interest and bank charges
(1.09)
(0.26)
(0.98)
(0.10)
Interest income
-
0.16
-
0.29
Corporate netback ($/Boe)1
4.11
4.91
4.48
7.77
Operating netback ($ per Mcfe)1
1.05
1.01
1.11
1.43
Corporate netback ($ per Mcfe)1
0.69
0.82
0.75
1.30
1 This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
10
PINE CLIFF ENERGY LTD.
SENSITIVITIES
Pine Cliff’s results are sensitive to changes in the business environment in which it operates. The following chart shows the
Company’s sensitivity to key commodity price variables. The sensitivity calculations are performed independently showing the effect
of the change of one variable; all other variables are held constant.
Business environment sensitivities
Impact on annual adjusted funds flow1,2
Change
$000s
$ per share4
Realized natural gas price3
$0.10
3,722
0.01
Realized NGLs price3
$1.00
1,088
0.00
Realized crude oil price3
$1.00
516
0.00
1 This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.
2 This analysis does not adjust for changes in working capital and uses corporate royalty rates from the year ended December 31, 2024.
3 Pine Cliff has prepared this analysis using its Q4 2024 production volumes annualized for twelve months.
4 Based on the Q4 2024 basic weighted average shares outstanding.
BENCHMARK PRICES
Three months ended December 31,
Year ended December 31,
2024
2023
% Change
2024
2023
% Change
Natural gas
NYMEX (US$/MMBtu)1
2.79
2.88
(3)
2.27
2.79
(19)
AECO Daily 5A (C$/Mcf)2
1.51
2.30
(34)
1.46
2.63
(44)
Crude oil
WTI (US$/Bbl)
70.27
78.32
(10)
75.72
77.62
(2)
Edmonton Light (C$/Bbl)
94.97
99.79
(5)
97.62
100.58
(3)
Foreign exchange
US$/C$
1.399
1.362
3
1.369
1.350
1
1 MMBtu is the abbreviation for millions of British thermal units. One Mcf of natural gas is approximately 1.02 MMBtu.
2 AECO prices are quoted in $/Gigajoule. Price has been converted from $/GJ to $/Mcf by multiplying by 1.05.
Quarterly Benchmark Prices
Pine Cliff’s financial results are influenced by fluctuations in commodity prices, foreign exchange rates and price differentials. The
following table shows select market benchmark average prices and foreign exchange rates in the last eight quarters to assist in
understanding the volatility in prices and foreign exchange rates that have impacted Pine Cliff’s business.
Q4-2024
Q3-2024
Q2-2024
Q1-2024
Q4-2023
Q3-2023
Q2-2023
Q1-2023
Natural gas
NYMEX (US$/MMBtu)1
2.79
2.16
1.89
2.24
2.88
2.55
2.30
3.42
AECO Daily 5A (C$/Mcf) 2
1.51
0.68
1.17
2.48
2.30
2.58
2.44
3.21
Pine Cliff realized natural
gas price (C$/Mcf)
2.30
2.00
2.10
2.56
2.59
2.88
2.79
3.74
Crude oil
WTI (US$/Bbl)
70.27
75.09
80.57
76.96
78.32
82.26
73.78
76.13
Edmonton Light (C$/Bbl)
94.97
97.92
105.33
92.24
99.79
107.85
95.33
99.34
Pine Cliff realized NGLs
price (C$/Bbl)
40.33
40.69
43.10
42.22
48.51
52.69
49.39
64.19
Pine Cliff realized Oil
price (C$/Bbl)
88.27
90.11
94.66
83.22
93.15
96.44
86.27
92.44
Foreign exchange
US$/C$
1.399
1.360
1.370
1.348
1.362
1.341
1.343
1.352
1 MMBtu is the abbreviation for millions of British thermal units. One Mcf of natural gas is approximately 1.02 MMBtu.
2 AECO prices are quoted in $/Gigajoule. Price has been converted from $/GJ to $/Mcf by multiplying by 1.05.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
11
PINE CLIFF ENERGY LTD.
In the three months and year ended December 31, 2024, the AECO daily benchmark was 34% and 44% lower compared to the same
periods of 2023. The changes for the periods are mainly due to an increase in natural gas storage levels resulting from supply and
demand factors, including the impact of a warmer than normal winter throughout 2023/2024, while natural gas production in North
America and Canada in particular, continued to grow in anticipation of additional liquefied natural gas (“LNG”) export capacity. The
price realized by the Company for natural gas production in Western Canada is primarily influenced by the Alberta price hub AECO,
while diversification projects to delivery points such as Dawn in Ontario and TransGas into Saskatchewan have created
diversification pricing options to complement AECO pricing.
The average benchmarks for WTI crude decreased by 10% and 2%, for the three months and year ended December 31, 2024, as
compared to the same periods in 2023, primarily due to supply and demand dynamics including global economic conditions and
geopolitical factors. Agreements made between the Organization of Petroleum Exporting Countries (“OPEC”) and other crude oil
producing countries globally have brought the supply of global oil production into approximate balance with demand. Nevertheless,
future crude oil prices remain volatile reflecting the uncertainty that global economic conditions and geopolitical factors are expected
to continue on crude oil demand.
Canadian crude prices are based upon refinery postings at Edmonton, Alberta and are linked to WTI through transportation tariffs
to common markets and the foreign exchange rate.
The supply and demand dynamics for NGLs components such as ethane, propane, butane, and condensate impact the relationship
between the price of NGLs and the price of crude oil. The fluctuations in NGLs price normally correlate with the Edmonton Light oil
price.
SALES VOLUMES
Three months ended December 31,
Year ended December 31,
Total sales volumes by product
2024
2023
% Change
2024
2023
% Change
Natural gas (Mcf)
9,954,963
10,166,440
(2) 40,565,421
39,229,102
3
NGLs (Bbl)
291,638
155,479
88
1,185,417
544,764
118
Crude oil (Bbl)
141,052
123,900
14
562,590
458,015
23
Total Boe
2,091,851
1,973,786
6
8,508,911
7,540,963
13
Total Mcfe
12,551,103
11,842,714
6 51,053,463
45,245,776
13
Natural gas weighting
79%
86%
(8)
79%
87%
(9)
Three months ended December 31,
Year ended December 31,
Average daily sales volumes by product
2024
2023
% Change
2024
2023
% Change
Natural gas (Mcf/d)
108,212
110,499
(2)
110,834
107,471
3
NGLs (Bbl/d)
3,170
1,690
88
3,239
1,493
118
Crude oil (Bbl/d)
1,533
1,347
14
1,537
1,255
23
Total (Boe/d)
22,738
21,454
6
23,248
20,660
13
Total (Mcfe/d)
136,428
128,724
6
139,488
123,960
13
Three months ended December 31,
Year ended December 31,
Average daily sales volumes by area
2024
2023
% Change
2024
2023
% Change
Central (Boe/d)
15,539
13,158
18
15,750
12,155
30
Southern (Boe/d)
5,670
6,523
(13)
5,899
6,573
(10)
Edson (Boe/d)
1,529
1,773
(14)
1,599
1,932
(17)
Total (Boe/d)
22,738
21,454
6
23,248
20,660
13
Pine Cliff sales volumes increased by 6% to 22,738 Boe/d (136,428 Mcfe/d) and by 13% to 23,248 Boe/d (139,488 Mcfe/d) for the
three months and year ended December 31, 2024 compared to the same periods in 2023 primarily from a December 2023
acquisition, partially offset by natural production declines.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
12
PINE CLIFF ENERGY LTD.
COMMODITY SALES
Three months ended December 31,
Year ended December 31,
($000s)
2024
2023
% Change
2024
2023
% Change
Natural gas
22,871
26,380
(13)
90,674
117,432
(23)
NGLs
11,762
7,543
56
49,334
29,149
69
Crude oil
12,450
11,542
8
50,110
42,271
19
Total commodity sales
47,083
45,465
4
190,118
188,852
1
% of revenue from natural gas sales
49%
58%
(9)
48%
62%
(14)
Realized Prices
Three months ended December 31,
Year ended December 31,
$ per unit
2024
2023
% Change
2024
2023
% Change
Natural gas ($/Mcf)
2.30
2.59
(11)
2.24
2.99
(25)
NGLs ($/Bbl)
40.33
48.51
(17)
41.62
53.51
(22)
Crude oil ($/Bbl)
88.27
93.15
(5)
89.07
92.29
(3)
Total ($/Boe)
22.51
23.03
(2)
22.34
25.04
(11)
Total ($/Mcfe)
3.75
3.84
(2)
3.72
4.17
(11)
Commodity sales in the three months ended December 31, 2024 of $47.1 million increased 4% from $45.5 million in the
corresponding period in the prior year. The quarterly increase of $1.6 million consists of $2.7 million from higher sales volumes,
partially offset by $1.1 million in lower realized commodity prices. Commodity sales in the year ended December 31, 2024 of $190.1
million increased 1% from $188.9 million compared to the prior year. The increase of $1.3 million consists of $24.2 million attributed
to higher sales volumes, mostly offset by $22.9 million in lower realized commodity prices.
Pine Cliff’s realized natural gas price was $2.30 per Mcf in the three months ended December 31, 2024, 11% lower than the $2.59
per Mcf realized in the corresponding period of the prior year reflecting AECO gas prices. Similarly, Pine Cliff’s realized natural gas
price was $2.24 per Mcf during the year ended December 31, 2024, 25% lower than the $2.99 per Mcf realized in the corresponding
period of the prior year. Pine Cliff’s realized natural gas price was 52% and 53% higher than the AECO 5A benchmarks for the three
months and year ended December 31, 2024, both a result of Pine Cliff’s marketing diversification programs and fixed price physical
natural gas sales contracts.
For the three months and year ended December 31, 2024, Pine Cliff’s realized NGLs price was $40.33 per Bbl and $41.62 per Bbl,
compared to $48.51 per Bbl and $53.51 per Bbl, in the corresponding periods of the prior year. For the three months and year ended
December 31, 2024, Pine Cliff’s realized oil price was $88.27 per Bbl and $89.07 per Bbl, compared to $93.15 per Bbl and $92.29 per
Bbl, respectively in 2023. Pine Cliff’s realized crude oil prices in the three months and year ended December 31, 2024 were 93% and
91% of Edmonton Light compared to 93% and 92% in 2023.
Pine Cliff’s realized NGLs prices in the three months and year ended December 31, 2024 were 42% and 43% of Edmonton Light
compared to 49% and 53% in the corresponding periods of the prior year. This decrease in crude oil and NGLs pricing in the three
months and year ended December 31, 2024, relative to 2023, is due primarily to global economic and geopolitical factors and the
corresponding impact on global oil demand.
ROYALTY EXPENSE
Three months ended December 31,
Year ended December 31,
($000s)
2024
2023
% Change
2024
2023
% Change
Total royalty expense
4,601
5,196
(11)
15,426
19,963
(23)
$ per Boe
2.20
2.63
(16)
1.81
2.65
(32)
$ per Mcfe
0.37
0.44
(16)
0.30
0.44
(32)
Royalty expense as a % of commodity sales
10%
11%
(9)
8%
11%
(27)
For the three months ended December 31, 2024, total royalty expense decreased by 11% to $4.6 million from $5.2 million in the
corresponding period of the prior year. Royalty expense as a percentage of commodity sales were 10% in the three months ended
MANAGEMENT DISCUSSION AND ANALYSIS
2024
13
PINE CLIFF ENERGY LTD.
December 31, 2024, compared to 11% in the corresponding period of the prior year. The decrease in royalty expense as a
percentage of commodity sales for the period ended December 31, 2024 is primarily due to lower realized natural gas & NGL
commodity prices.
For the year ended December 31, 2024, total royalty expense decreased by 23% to $15.4 million from $20.0 million in the
corresponding period of the prior year. Royalty expense as a percentage of commodity sales were 8% during the year ended
December 31, 2024, compared to 11% in the corresponding period of the prior year. The decrease in royalty expense as a
percentage of commodity sales for the year ended December 31, 2024 is primarily due to favourable royalty adjustments from prior
periods and lower realized natural gas & NGL commodity prices.
TRANSPORTATION COSTS
Three months ended December 31,
Year ended December 31,
($000s)
2024
2023
% Change
2024
2023
% Change
Total transportation costs
2,969
2,866
4
11,867
10,810
10
$ per Boe
1.42
1.45
(2)
1.39
1.43
(3)
$ per Mcfe
0.24
0.24
(2)
0.23
0.24
(3)
For the three months and year ended December 31, 2024, total transportation costs increased by 4% to $3.0 million from $2.9 million
and increased by 10% to $11.9 million from $10.8 million, both relative to the same periods in the prior year. The higher
transportation expenses in 2024 are due to the Company diverting additional volumes to markets with higher pricing points than
AECO.
NET OPERATING EXPENSES
Three months ended December 31,
Year ended December 31,
($000s)
2024
2023
% Change
2024
2023
% Change
Operating expenses
27,695
26,956
3
111,672
98,535
13
Less: processing and gathering income
(1,378)
(1,481)
(7)
(5,509)
(5,159)
7
Net operating expenses
26,317
25,475
3
106,163
93,376
14
$ per Boe
12.58
12.91
(3)
12.47
12.39
1
$ per Mcfe
2.10
2.15
(3)
2.08
2.07
1
Net operating expenses increased to $26.3 million from $25.5 million and to $106.2 million from $93.4 million in the three months
and year ended December 31, 2024, respectively, compared to the same periods in 2023 periods, primarily due to increased sales
volumes from a December 2023 acquisition.
On a per Boe basis, operating costs decreased to $12.58 per Boe and increased to $12.47 per Boe for the three months and year ended
December 31, 2024 compared to $12.91 per Boe and $12.39 per Boe in the corresponding periods of 2023.
GENERAL AND ADMINISTRATIVE EXPENSES (“G&A”)
Three months ended December 31,
Year ended December 31,
($000s)
2024
2023
% Change
2024
2023
% Change
Gross G&A
3,078
2,801
10
13,377
10,920
23
Less: overhead recoveries
(762)
(765)
-
(3,077)
(3,425)
10
Total G&A expenses
2,316
2,036
14
10,300
7,495
37
$ per Boe
1.11
1.03
8
1.21
0.99
22
$ per Mcfe
0.19
0.17
8
0.20
0.17
22
G&A increased by 14% to $2.3 million in the three months ended December 31, 2024, as compared to $2.0 million in the
corresponding period of the prior year. The increase in G&A is primarily a result of additional personnel and costs associated with
a December 2023 acquisition. Similarly, G&A increased to $10.3 million for the year ended December 31, 2024 as compared to $7.5
million in the corresponding period of the prior year primarily a result of additional personnel and costs associated with a December
2023 acquisition.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
14
PINE CLIFF ENERGY LTD.
On a per Boe basis, G&A for the three months and year ended December 31, 2024, increased 8% to $1.11 per Boe and 22% to $1.21
per Boe from $1.03 per Boe and $0.99 per Boe, in the corresponding periods of the prior year, primarily a result of an increase in
personnel and incremental G&A costs associated with integration of a December 2023 acquisition.
SHARE-BASED COMPENSATION
Three months ended December 31,
Year ended December 31,
($000s)
2024
2023
% Change
2024
2023
% Change
Total share-based compensation
956
844
13
2,982
2,856
4
$ per Boe
0.46
0.43
7
0.35
0.38
(8)
$ per Mcfe
0.08
0.07
7
0.06
0.06
(8)
Share based compensation increased by 13% and 4% for the three months and year ended December 31 2024, respectively,
compared to the corresponding periods of 2023, primarily reflecting a larger option grant with additional personnel from a
December 2023 acquisition, somewhat offset by a reduction in the fair value of stock options granted in May 2024 compared to May
2023. Stock options are granted to certain officers, directors, and employees with the number, term and vesting period of the options
granted being determined at the discretion of the Company’s Board of Directors to a maximum of 10% of the outstanding Common
Shares.
During the year ended December 31, 2024, Pine Cliff granted 12,970,857 stock options to purchase Common Shares at a weighted
average exercise price of $1.04 (December 31, 2023 – 11,603,180 at an average exercise price of $1.32). As at December 31, 2024,
the Company had 27,256,078 stock options outstanding, representing 7.6% of Common Shares outstanding (December 31, 2023 –
20,704,822 representing 5.8% of Common Shares outstanding).
DEPLETION, DEPRECIATION, AND PROPERTY, PLANT AND EQUIPMENT IMPAIRMENT
Three months ended December 31,
Year ended December 31,
($000s)
2024
2023
% Change
2024
2023
% Change
Total depletion and depreciation
12,932
12,820
1
53,669
43,928
22
$ per Boe
6.18
6.50
(5)
6.31
5.83
8
$ per Mcfe
1.03
1.08
(5)
1.05
0.97
8
Impairment
7,000
-
100
7,000
-
100
Total depletion, depreciation, and impairment
19,932
12,820
55
60,669
43,928
38
$ per Boe
9.53
6.50
47
7.13
5.83
22
$ per Mcfe
1.59
1.08
47
1.19
0.97
22
Depletion and depreciation expense for the three months and year ended December 31, 2024, totaled $12.9 million and $53.7 million
compared to $12.8 million and $43.9 million in the corresponding periods of the prior year. The increase for the year is a result of a
higher depletable base from a December 2023 acquisition and changes in reserves volumes. Depletion and depreciation per Boe will
fluctuate from one period to the next depending on changes in reserves, the amount and success of capital expenditures and the
amount of future development costs. Depletion is calculated using total proved and probable reserves and reserves estimates are
subject to revision.
Property, Plant and Equipment (“PP&E”) Impairment Assessment
As at December 31, 2024, the Company had three cash generating units (“CGU’s”) being the Southern CGU, Central CGU and Edson
CGU. In accordance with IFRS, an impairment test is performed if the Company identifies indicators of impairment at the end of a
reporting period. At December 31, 2024, the Company determined that an indicator related to future commodity prices was present.
The Company prepared estimates of the fair value less costs of disposal (“FVLCD”) for each CGU. When it is determined that any
CGU’s carrying value exceeds its recoverable amount, that CGU is considered impaired, and an impairment expense is reported that
equals this excess.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
15
PINE CLIFF ENERGY LTD.
The following table outlines forecast benchmark prices and exchange rates used in the Company’s impairment test as at December
31, 2024:
WTI Crude
Oil1
Edmonton
Light
Crude Oil1
Edmonton
Cond &
Natural
Gasolines1
Edmonton
Ethane1
Edmonton
Propane1
Edmonton
Butanes1
Alberta
AECO Spot
Price1
$US to $C
Exchange
Rate1
Year
$US/Bbl
$C/Bbl
$C/Bbl
$C/Bbl
$C/Bbl
$C/Bbl
$C/MMBtu
2025
71.58
94.79
100.14
7.54
33.56
51.15
2.36
0.712
2026
74.48
97.04
100.72
10.76
32.78
49.99
3.33
0.728
2027
75.81
97.37
100.24
11.32
32.81
50.16
3.48
0.743
2028
77.66
99.80
102.73
12.02
33.63
51.41
3.69
0.743
2029
79.22
101.79
104.79
12.26
34.30
52.44
3.76
0.743
2030
80.80
103.83
106.86
12.51
34.99
53.49
3.83
0.743
2031
82.42
105.91
109.01
12.77
35.69
54.56
3.91
0.743
2032
84.06
108.03
111.19
13.03
36.40
55.65
3.99
0.743
2033
85.74
110.19
113.42
13.30
37.13
56.76
4.07
0.743
2034
87.46
112.39
115.69
13.57
37.87
57.90
4.15
0.743
2035
89.21
114.64
118.00
13.84
38.63
59.05
4.23
0.743
2036
90.99
116.93
120.36
14.12
39.40
60.24
4.32
0.743
2037
92.81
119.27
122.77
14.40
40.19
61.44
4.40
0.743
2038
94.67
121.65
125.23
14.69
41.00
62.67
4.49
0.743
2039
96.56
124.09
127.73
14.98
41.82
63.92
4.58
0.743
Thereafter
+2%/year
+2%/year
+2%/year
+2%/year
+2%/year
+2%/year
+2%/year
0.743
1 Source: Average of three independent consultant price forecasts, effective January 1, 2025 (McDaniel & Associates Consultants Ltd., GLJ Petroleum
Consultants Ltd. and Sproule Associates Limited).
The recoverable amounts of each of the Company’s CGU’s at December 31, 2024 were estimated at their FVLCD, based on the net
present value of discounted future cash flow from operating activities from oil and gas reserves as estimated by the Company’s
independent reserves evaluator at December 31, 2024. The FVLCD used to determine the recoverable amounts are classified as
Level 3 fair value measurements as certain key assumptions are not based on observable market data, but rather, management’s best
estimates.
The Company used a pre‐tax 15% discount rate for the December 31, 2024 impairment test which took into account risks specific to
the CGU’s and inherent in the oil and gas business.
The following CGU was impaired as at December 31, 2024:
CGUs
2024
2023
Edson
7,000
-
Total Impairment
7,000
-
The impairment test of PP&E at December 31, 2024 concluded that the carrying amount of the Edson CGU of $25.3 million exceeded
its fair value less costs of disposal of $18.3 million. The full amount of the impairment was attributed to PP&E and, as a result, a total
impairment loss of $7.0 million was recorded in impairment expense. The impairment expense in 2024 was primarily a result of
negative pricing revisions in reserves at December 31, 2024, compared to December 31, 2023.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
16
PINE CLIFF ENERGY LTD.
FINANCE EXPENSES
Three months ended December 31,
Year ended December 31,
($000s)
2024
2023
% Change
2024
2023
% Change
Interest expense and bank charges
2,272
515
341
8,345
733
1,038
$ per Boe
1.09
0.26
319
0.98
0.10
880
$ per Mcfe
0.18
0.04
319
0.16
0.02
880
Non cash:
Accretion on decommissioning provision
2,154
1,815
19
8,594
6,874
25
Accretion on term loan
117
23
409
460
23
1,900
Total finance expenses
4,543
2,353
93
17,399
7,630
128
$ per Boe
2.17
1.19
82
2.04
1.01
102
$ per Mcfe
0.36
0.20
82
0.34
0.17
102
Finance expenses increased by 93% to $4.5 million for the three months ended December 31, 2024, as compared to $2.4 million in
the corresponding period of the prior year and by 128% to $17.4 million for the year ended December 31, 2024, as compared to $7.6
million in the corresponding period of the prior year. Please refer to the “DEBT, LIQUIDITY AND CAPITAL RESOURCES” section for
additional information.
DEFERRED INCOME TAX
The Company has recorded a deferred tax asset of $49.4 million (December 31, 2023 - $43.6 million) related to the benefit of tax
pools, as it is probable they will be recovered. The Company had the following tax pools, including non-capital loss carry-forwards,
at December 31, 2024:
Category of tax pool ($000s)
Rate of Utilization (%)
As at December 31,
2024
Undepreciated capital costs
7 - 55
28,855
Canadian oil and gas property expenditures
10
171,106
Canadian development expenditures
30
25,124
Canadian exploration expenditures
100
156
Share issue costs
20
1,970
Non-capital losses carried forward1
100
123,202
Capital losses carried forward2
1,975
Total
352,388
1 Non-capital losses expire between the years 2032 and 2044.
2 The capital losses carried forward can only be claimed against taxable capital gains.
CAPITAL EXPENDITURES, ACQUISITIONS AND DISPOSITIONS
Year ended December 31,
($000s)
2024
2023
Exploration and evaluation
-
34
Property, plant and equipment
2,529
20,932
Capital expenditures
2,529
20,966
Acquisitions
645
109,326
Dispositions
(10,519)
(379)
Total
(7,345)
129,913
Capital expenditures on PP&E of totaled $2.5 million, including facilities, optimization and maintenance capital.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
17
PINE CLIFF ENERGY LTD.
DECOMMISSIONING PROVISION
The total current and long-term decommissioning provision of $231.9 million was estimated by management based on the
Company’s working interest and estimated costs to remediate, reclaim and abandon its wells, pipelines, and facilities and estimated
timing of the costs to be incurred in future periods.
At December 31, 2024, the estimated total undiscounted and uninflated amount required to settle the decommissioning liabilities
was $323.8 million (December 31, 2023 - $327.3 million). The discounted and inflated amount required to settle the
decommissioning liabilities of $231.9 million has been calculated assuming a 2.00% inflation rate (December 31, 2023 – 2.00%) and
discounted using an average risk-free interest rate of 3.24% (December 31, 2023 – 3.08%). These obligations are currently expected
to be settled based on the useful lives of the underlying assets, some of which extend beyond 50 years into the future.
DEBT, LIQUIDITY AND CAPITAL RESOURCES
Term Loan
On December 13, 2023, the Company entered into a three-year first lien, non-revolving term loan facility (the “Term Loan”). The
amounts borrowed under the Term Loan bear interest at an annual interest rate equal to Canadian Prime Lending Rate (the “Prime
Rate”) plus 3.65%, where Prime Rate cannot be less than 6.95%. The Company is required to make mandatory principal quarterly
repayments equal to $2.1 million, payable on the first banking day of January, April, July and October of each calendar year,
commencing April 1, 2024. The Term Loan has a maturity date of December 13, 2026 on which date the remaining outstanding
principal balance is to be paid.
On March 27, 2024, the Term Loan was amended pursuant to the first amending agreement (the “First Amendment”), whereby the
mandatory principal quarterly repayment due on March 31, 2024, was deferred until March 31, 2025 (the “Deferred Payment”).
The Deferred Payment may be repaid on the last banking day of any calendar month before March 31, 2025, along with any accrued
and unpaid interest and fees. In accordance with the First Amendment, the Company incurred an amendment fee of $0.5 million and
will incur a monthly fee of $0.05 million until the Deferred Payment is fully repaid.
On November 29, 2024, the Term Loan was amended pursuant to the second amending agreement (the “Second Amendment”),
which extended the maturity date of the CWB Credit Facilities from November 30, 2024, to April 30, 2025. In connection with the
Second Amendment, the Company incurred an amendment fee of $0.1 million, which was deemed fully earned on the date of the
agreement and became payable on December 6, 2024.
On December 19, 2024, the Company entered into the third amending agreement which introduced new amortization requirements
associated with the disposition of a non-operated working interest in underutilized gas processing infrastructure, mandating that,
beginning January 2025, if the Company or its subsidiaries make a distribution (including dividends to shareholders), an additional
principal repayment equal to 15% of the distribution amount be made on the last banking day of that month. This repayment
requirement remains in effect while either of the following conditions exists:
•
Consolidated Debt to EBITDA Ratio is greater than or equal to 1.0:1.0; or
•
Consolidated Debt to next-twelve-month EBITDA Ratio is greater than or equal to 1.0:1.0.
The Company shall not have the right to make an optional prepayment of the outstanding principal balance until after December 12,
2025, which shall include an amount of 1.5% of the principal amount prepaid, except for the following one-time optional
prepayments:
(i)
as a one-time option on March 12, 2025, make a prepayment of all or any portion of the outstanding principal balance
plus an amount of 4% of the principal amount prepaid; provided that such outstanding principal balance to be prepaid
is not less than 15% of the outstanding principal balance under the Term Loan immediately prior to such partial
prepayment; and
(ii)
as a one-time option on June 12, 2025, make a prepayment of all or any portion of the outstanding principal balance
plus an amount of 3% of the principal amount prepaid; provided that such outstanding principal balance to be prepaid
is not less than 15% of the outstanding principal balance under the Term Loan immediately prior to such partial
prepayment.
The amount drawn under the Term Loan at December 31, 2024 was $49.2 million (December 31, 2023 – $56.3 million). Based on
the calculated fair value of the Term Loan as at December 31, 2024, the effective interest rate was determined to be 12.5% using the
effective interest method. The value of the loan will be accreted up to the principal balance at maturity. Interest accrued at December
31, 2024 was $nil (December 31, 2023 - $0.3 million).
MANAGEMENT DISCUSSION AND ANALYSIS
2024
18
PINE CLIFF ENERGY LTD.
Security for the Term Loan consists of floating demand debentures totaling $110.0 million (December 31, 2023 - $110.0 million)
over all of the Company’s assets and a general security agreement with first priority ranking over all personal and real property other
than field facilities with the Demand Loan.
The Company is subject to certain financial covenants under its Term Loan as follows:
•
Consolidated Debt, as defined herein, to EBITDA, as defined herein, ratio shall not exceed 1:5:1.0; and
•
Asset Coverage ratio, as defined herein, of not less than 1.5:1.0.
Consolidated Debt is defined as all indebtedness for borrowed money, including issued and drawn letters of credit or letters of
guarantee other than letters of credit supported by a performance guarantee from Export Development Canada. EBITDA is defined
as net income (loss) for the trailing twelve-month period excluding finance costs, provision for current and deferred income tax,
depletion and depreciation, share option compensation and gain or loss on sale of assets and impairment of assets, less cash taxes
paid and decommissioning expenses incurred during the period.
Asset Coverage ratio is defined as the proved developed producing reserves of the Company (before income tax, discounted at 10%),
as evaluated by an independent third-party engineering report and evaluated on strip commodity pricing, divided by the
consolidated borrowings of the Company at December 31 of the calendar year. The ratio is calculated and revaluated for strip pricing
at June 30 period end, based on an internally prepared engineering report.
The Company was in compliance with its Term Loan covenants at December 31, 2024.
Demand Loan
On November 29, 2024, the Company’s Demand Loan (the “Demand Loan”) with a Canadian chartered bank was temporarily
increased to $15.0 million from $12.0 million, reducing to a permanent amount of $12.0 million, effective April 30, 2025, at which
time, the utilization of the Demand Loan can be restricted to 70% at the end of each calendar quarter so long as the Company is a
dividend payer. Borrowings bear interest at the bank’s prime lending rate plus 2.0%. There was $7.4 million drawn at December
31, 2024 (December 31, 2023 - $4.0 million). Letters of credit issued under the Demand Loan are supported by a performance
guarantee from Export Development Canada for an amount up to $6.7 million and incur an issuance fee of 2.38%. At December 31,
2024, the Company had issued $6.6 million in letters of credit (December 31, 2023 - $0.8 million).
The Demand Loan is secured by a general security agreement over certain tangible field facilities of the Company.
The Company is subject to the following financial covenant under its Demand Loan:
•
Senior Debt, as defined herein, to Net EBITDA, as defined herein, ratio shall not exceed 3.0:1.0 at the end of each quarter-
end.
Senior Debt is defined as any secured indebtedness for borrowed money. Net EBITDA shall mean net income (loss) excluding finance
costs, provision for current and deferred income tax, depletion and depreciation, share option compensation and gain or loss on
sale of assets and impairment of assets, less cash taxes and dividends paid, on a trailing twelve-month basis.
The Company was in compliance with its Demand Loan covenant at December 31, 2024.
Liquidity
As at December 31, 2024, the Company’s capital comprises shareholders’ equity, Term Loan and working capital, including Demand
Loan. Pine Cliff manages the capital structure and adjusts considering economic conditions and the risks of the underlying assets.
The Company currently has a working capital deficiency of $33.3 million. Pine Cliff has and will continue to manage its working
capital needs through its physical diversification program, adjusting timing of capital expenditures, executing asset dispositions,
managing dividend levels and issuing equity when practical.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
19
PINE CLIFF ENERGY LTD.
The Company defines and computes its net debt as follows:
($000s)
December 31, 2024
December 31, 2023
$ Change
Trade and other receivables
23,702
23,657
45
Prepaid expenses and deposits
5,722
7,321
(1,599)
Investments
-
208
(208)
Less:
-
Trade and other payables
(35,236)
(43,840)
8,604
Term loan
(49,153)
(55,023)
5,870
Demand loan
(7,358)
(4,002)
(3,356)
Net debt1
(62,323)
(71,679)
9,356
1 This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.
Share Capital
COMMITMENTS AND CONTINGENCIES
As at December 31, 2024, the Company has the following commitments and other contractual obligations:
2025
2026
2027
2028
2029
Thereafter
($000s)
Accounts payable and accrued liabilities
35,236
-
-
-
-
-
Demand loan
7,358
-
-
-
-
-
Term loan1
16,376
42,397
-
-
-
-
Lease obligations1
1,418
1,223
622
299
88
-
Transportation2
11,232
8,369
6,179
1,983
1,258
384
Total commitments and contingencies
71,620
51,989
6,801
2,282
1,346
384
1 These amounts include the notional principal and interest payments.
2 Firm transportation agreements.
SUBSEQUENT EVENTS
Dividends
On January 31, 2025 and February 28, 2025, the Company paid a monthly dividend of $0.005 per Common Share.
On March 5, 2025, the Company declared a monthly dividend of $0.005 per Common Share. The dividend is payable March 31, 2025,
to all shareholders of record on March 14, 2025.
Share capital
March 5, 2025
December 31, 2024
December 31, 2023
Common Shares
358,228,142
358,067,145
356,298,069
Stock options
27,206,078
27,334,078
20,704,822
MANAGEMENT DISCUSSION AND ANALYSIS
2024
20
PINE CLIFF ENERGY LTD.
QUARTERLY TRENDS AND SELECTED FINANCIAL INFORMATION
($000s, unless otherwise indicated)
Q4-2024
Q3-2024
Q2-2024
Q1-2024
Q4-2023
Q3-2023
Q2-2023
Q1-2023
FINANCIAL
Total revenue
43,860
42,058
46,611
47,672
42,073
45,831
39,680
48,676
Cash provided by operating
activities
518
8,058
5,692
9,527
16,559
15,238
12,504
22,326
Adjusted funds flow1
8,608
8,131
10,780
10,498
9,700
17,123
12,040
19,824
Per share – Basic and Diluted
($/share)
0.02
0.02
0.03
0.03
0.03
0.05
0.03
0.06
Net income (loss)
(5,607)
(6,886)
(4,095)
(4,858)
841
4,237
(942)
4,985
Per share – Basic and Diluted
($/share)
(0.02)
(0.02)
(0.01)
(0.01)
0.00
0.01
(0.00)
0.01
Capital expenditures
32
901
1,037
559
3,616
4,715
8,193
4,442
Dividends
5,371
5,370
5,357
9,499
11,567
11,557
11,478
11,413
Per share – Basic and Diluted
($/share)
0.01
0.02
0.02
0.03
0.03
0.03
0.03
0.03
Acquisitions
86
243
225
91
109,014
-
312
-
Positive net cash (net debt)1
(62,323)
(67,281)
(68,647)
(72,687)
(71,679)
46,502
49,301
58,139
Weighted average common shares
outstanding (000s):
Basic
358,086
357,965
357,114
356,319
355,969
355,710
353,216
351,263
Diluted
358,086
357,965
357,114
356,319
359,262
359,262
353,216
359,675
PRODUCTION VOLUMES
Natural gas (Mcf/d)
108,212
107,985
112,531
113,633
110,499
108,138
106,024
105,176
NGLs (Bbl/d)
3,170
3,105
3,334
3,352
1,690
1,489
1,343
1,446
Crude oil (Bbl/d)
1,533
1,443
1,599
1,574
1,347
1,383
1,184
1,101
Average sales volumes (Boe/d)
22,738
22,546
23,688
23,865
21,454
20,895
20,198
20,076
Average sales volumes (Mcfe/d)
136,428
135,276
142,128
143,190
128,724
125,370
121,188
120,456
PRICES AND NETBACKS
Total commodity sales ($/Boe)
22.51
20.93
22.42
23.62
23.03
25.06
23.00
29.30
Operating netback ($/Boe)1
6.31
5.89
7.14
7.30
6.04
9.65
7.11
11.72
Corporate netback ($/Boe)1
4.11
3.91
5.01
4.84
4.91
8.91
6.55
10.99
Total commodity sales ($/Mcfe)
3.75
3.49
3.74
3.94
3.84
4.18
3.83
4.88
Operating netback ($/Mcfe)1
1.05
0.98
1.19
1.22
1.01
1.61
1.19
1.95
Corporate netback ($/Mcfe)1
0.69
0.65
0.84
0.81
0.82
1.49
1.09
1.83
1 This is a non-GAAP measure, see NON-GAAP MEASURES for additional information.
Over the past eight quarters, Pine Cliff’s revenues, cash provided by operating activities, adjusted funds flow, and net income (loss)
have fluctuated primarily due to changes in commodity prices and sales volumes. Net income (loss) also fluctuate with non-cash
expenditures, including depletion, depreciation and impairments. Selected highlights for the past eight quarters are consistent with
those disclosed in the Annual MD&A, except as described below.
•
Average sales volumes increased in the first quarter of 2024 compared to the fourth quarter of 2023 due primarily to
increased sales volumes from a December 2023 acquisition. Average sales volumes decreased in the third quarter of 2024
compared to the first and second quarter of 2024 due to normal course facilities maintenance and weather-related factors
that impacted production. Average sales volumes increased in the fourth quarter of 2024 compared to the third quarter of
2024 due to increased swabbing of natural gas wells.
•
Adjusted funds flow increased in the first quarter of 2024 compared to the fourth quarter of 2023 due primarily to the
increase in sales volumes, slightly offset by lower commodity pricing and additional operating expenses to produce the
incremental sales volumes. Adjusted funds flow increased slightly in the second quarter of 2024 compared to the first
quarter of 2024 as lower royalty and operating expenses offset the impact of slightly lower sales volumes and lower realized
natural gas prices. Adjusted funds flow decreased in the third quarter of 2024 compared to the second quarter of 2024 due
MANAGEMENT DISCUSSION AND ANALYSIS
2024
21
PINE CLIFF ENERGY LTD.
primarily to lower sales volumes and historically weak AECO natural gas prices. Adjusted funds flow increased in the fourth
quarter of 2024 compared to the third quarter of 2024 due primarily to higher sales volumes and higher realized
commodity prices.
•
Net loss increased in the first quarter of 2024 compared to the fourth quarter of 2023 due primarily to higher operating
expenses, finance costs and depreciation charges, partially offset by the increase in total revenue. Net loss decreased in the
second quarter of 2024 compared to the first quarter of 2024 due primarily to lower royalty and operating expenses. Net
loss increased in the third quarter of 2024 compared to the second quarter of 2024 due primarily to lower sales volumes
and lower realized commodity prices. Net loss decreased in the fourth quarter of 2024 compared to the third quarter of
2024 primarily due to higher sales volumes and higher realized commodity prices and a gain on disposition from
suboptimized gas processing infrastructure, slightly offset by an impairment charge.
•
Total revenues increased in the first quarter of 2024 compared to the fourth quarter of 2023 due primarily to increased
sales volumes from a December 2023 acquisition. Total revenues decreased in the second quarter of 2024 compared to the
first quarter of 2024 as higher crude oil prices realized were offset by lower realized natural gas prices and slightly lower
sales volumes. Total revenues decreased in the third quarter of 2024 compared to the second quarter of 2024 due primarily
to lower sales volumes and lower realized commodity prices. Total revenues increased in the fourth quarter of 2024
compared to the third quarter of 2024 due primarily to increased sales volumes and higher realized commodity prices.
OFF BALANCE SHEET TRANSACTIONS
Pine Cliff was not involved in any off-balance sheet transactions during the periods presented, nor has it entered into any such
arrangements as of the effective date of this MD&A.
FINANCIAL INSTRUMENTS
Financial instruments and fair value measurement
Financial instruments of the Company consist of accounts receivable, investments, accounts payable and accrued liabilities, Demand
Loan and Term loan. The carrying values of cash, accounts receivable, accounts payable and accrued liabilities, Demand Loan and
Term Loan approximate their respective fair values due to the short time before maturing. The carrying value of the Term Loan
approximates its fair value due to its interest rates reflecting current market conditions. Investments are measured at fair value
based on quoted market prices.
Assets and liabilities that are measured at fair value are classified into levels, reflecting the method used to make the
measurements. Level 1 fair value measurements are based on quoted prices that are available in active markets for identical assets
or liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to
provide pricing information on an ongoing basis. Level 2 fair value measurements are based on pricing inputs other than quoted
prices in active markets included in Level 1. Prices are either directly or indirectly observable as of the reporting date. Level 2
valuations are based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be
substantially observed or corroborated in the marketplace. Level 3 valuations are those with inputs for the asset and liability that
are not based on observable market data. Pine Cliff has no level 2 or level 3 financial instruments. Assessment of the significance of
a particular input to the fair value measurement requires judgement and may affect the placement within the fair value hierarchy
level.
RISK MANAGEMENT
The Company is exposed to both financial and non-financial risks inherent in the oil and gas business. Financial risks include:
commodity prices, interest rates and foreign exchange, credit availability and liquidity. Financial risks can be managed, at least to a
degree, through the utilization of financial instruments. Certain non-financial risks can be mitigated through the use of insurance
and/or other risk transfer mechanisms, good business practices and process controls, while others must simply be borne.
The Company employs risk management strategies and policies to ensure any exposure to risk is consistent with the Company’s
business objectives and risk tolerance levels. Risk management is ultimately established by the Board of Directors and is
implemented by management. All risks can have an impact upon the financial performance of the Company.
Market Risk
Market risk is the risk that the fair value or future cash provided by operating activities of the Company’s financial instruments will
fluctuate because of changes in market prices. Components of market risk to which Pine Cliff is exposed are discussed below.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
22
PINE CLIFF ENERGY LTD.
Commodity Price Risk
The Company is exposed to commodity price risk since its revenues are dependent on the prices of crude oil, NGLs and natural gas.
Commodity prices have fluctuated widely during recent years due to global and regional factors including, but not limited to, supply
and demand, inventory levels, weather, economic changes and geopolitical factors. Changes in natural gas, crude oil and NGL prices
may have a significant effect, positively or negatively, on the ability of the Company to meet its obligations, capital spending targets
and expected operational results. A material decline or extended period of low natural gas, crude oil or NGL prices will result in a
reduction of net production revenue. The economics of producing from some wells may change because of lower prices, which will
result in reduced production of natural gas, crude oil or NGL prices and a reduction in the volumes of Pine Cliff’s reserves.
Management may also elect not to produce from certain wells at lower prices.
Physical Sales Contracts
Pine Cliff enters into physical delivery sales contracts to manage commodity price risk. These contracts are considered normal
executory sales contracts and are not recorded at fair value in the financial statements.
At December 31, 2024, the Company had the following physical natural gas sales contracts in place:
Contractual Term
Delivery
Point
Physical Delivery
Quantity (GJ/day)
Contract Price
($CAD/GJ)1
Contract Price
($CAD/Mcf)1,2
January 1, 2025 to March 31, 2025
AECO
10,000
$2.35
$2.47
January 1, 2025 to October 31, 2025
AECO
15,000
$2.54
$2.67
January 1, 2025 to December 31, 2025
AECO
5,000
$2.85
$2.99
January 1, 2025 to December 31, 2025
AECO
9,059
$3.56
$3.74
January 1, 2026 to February 28, 2026
AECO
8,398
$3.58
$3.76
January 1, 2025 to October 31, 2025
TransGas3
14,000
AECO 5A + 0.39/GJ
AECO 5A + 0.41/Mcf
April 1, 2025 to October 31, 2025
DAWN4
5,000
$3.74
$3.92
1 Prices reported are the weighted average prices of the periods.
2 Price has been converted from $/GJ to $/Mcf by multiplying by 1.05.
3 Subsidiary of SaskEnergy, Saskatchewan.
4 Dawn Hub into Dawn Township, Ontario.
Subsequent to December 31, 2024, the Company had the following additional physical natural gas sales contracts in place:
Contractual Term
Delivery
Point
Physical Delivery
Quantity (GJ/day)
Contract Price
($CAD/GJ)1
Contract Price
($CAD/Mcf)1,2
March 1, 2025 to December 31, 2025
AECO
2,500
$2.05
$2.15
April 1, 2025 to October 31, 2026
AECO
2,500
$2.45
$2.57
April 1, 2025 – March 31, 2026
AECO
5,000
$1.75 - $3.113
$1.84 - $3.273
1 Prices reported are the weighted average prices of the periods.
2 Price has been converted from $/GJ to $/Mcf by multiplying by 1.05.
3 Price is a floor and ceiling for a fixed price costless collar.
At December 31, 2024, the Company had the following physical crude oil sales contracts in place:
Contractual Term
Crude Oil
Physical Delivery Quantity
(Bbl/day)
Contract Price
($USD/Bbl)1
January 1, 2025 to December 31, 2025
WTI Fixed Price
472
$68.91
January 1, 2026 to February 28, 2026
WTI Fixed Price
435
$66.60
1 Prices reported are the weighted average prices of the periods.
Interest Rate Risk
Interest rate risk refers to the risk that the value of a financial instrument or funds flows associated with the instrument will fluctuate
due to changes in market interest rates. Interest rate risk arises from interest bearing financial assets and liabilities that the Company
uses. The principal exposure of the Company is on its borrowings which have a variable interest rate which gives rise to a funds flow
interest rate risk.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
23
PINE CLIFF ENERGY LTD.
At December 31, 2024, the Company’s debt facilities consist of a $49.2 million non-revolving first lien Term Loan and a $15.0 million
Demand Loan with $7.4 million drawn, secured by specific equipment assets. The borrowings under the Term Loan are at the
Canadian Prime Rate plus 3.65%, (whereby Canadian Prime Rate cannot be less than 6.95%) and the Demand Loan is at the banks’
prime lending rate plus 2.0%.
Pine Cliff has not entered into any derivative financial instruments to manage this risk at this time.
Foreign Currency Exchange Risk
The Company is exposed to risk on foreign exchange rates because the commodity prices it receives are indirectly determined in
reference to United States dollar denominated commodity prices. The Company manages this risk by monitoring the foreign
exchange rate and evaluating its effect on cash provided by operating activities. Pine Cliff has not entered into any derivative
financial instruments to manage this risk at this time.
Sensitivity Analysis
Based on historic movements and volatilities in the interest rate markets and management’s current assessment of the financial
markets, the Company believes that a 1.0% variation in the Canadian prime interest rate is reasonably possible over a 12-month
period.
A 1.0% increase in the Canadian prime lending rate would decrease both net and comprehensive income by $0.1 million, assuming
the change in interest rate is effective from the beginning of the year and the amount of the Term Loan and the Demand Loan as at
December 31, 2024.
A 1.0% decrease in the Canadian prime lending rate would increase both net and comprehensive income by $0.1 million, assuming
the change in interest rate is effective from the beginning of the year and the amount of the Term Loan and the Demand Loan as at
December 31, 2024.
Credit Risk
Credit risk is the risk that a third party will not complete its contractual obligations under a financial instrument and cause the
Company to incur a financial loss. Pine Cliff’s maximum exposure to credit risk is the sum of the carrying values of its accounts
receivable and cash, which reflect management’s assessment of the associated maximum exposure to such credit risk.
To mitigate the credit risk on its cash, the Company maintains its cash balances with a Canadian chartered bank. To mitigate the
credit risk on accounts receivable, Pine Cliff assesses the financial strength of its counterparties through internal evaluation and
limiting exposure to any one counterparty.
The Company’s accounts receivable balance at December 31, 2024 of $23.7 million (December 31, 2023 – $23.7 million), is primarily
with oil and gas marketers and joint venture partners and are subject to typical industry credit risks. Amounts due from these parties
have generally been received within 30 to 90 days. When determining whether amounts that are past due are collectible,
management assesses the creditworthiness and past payment history of the counterparty, as well as the nature of the past due
amount. The Company generally considers amounts greater than 90 days to be past due. As at December 31, 2024, there was $2.4
million (December 31, 2023 - $1.9 million) of accounts receivable over 90 days. Pine Cliff assesses its accounts receivable quarterly
to determine if there has been any impairment. During the year ended December 31, 2024, the Company recorded a bad debt
recovery of $0.5 million (December 31, 2023 – ($nil)) against accounts receivable.
Liquidity Risk
Liquidity risk is the risk that Pine Cliff will not be able to meet its financial obligations as they become due. Pine Cliff manages its
liquidity risk through actively managing its capital, which it defines as cash, debt and equity. Capital management strategies include
continuously monitoring forecasted and actual cash provided by (used in) operating, financing and investing activities and
opportunities to issue additional equity. Pine Cliff actively monitors its credit and working capital to ensure that it has sufficient
available funds to meet its financial requirements at a reasonable cost. Management believes that funds generated from these sources
currently will be adequate to settle Pine Cliff’s financial liabilities. After examining the economic factors that are causing the liquidity
risk facing the Company, the judgment applied to these factors, and the various initiatives that the Company has and will undertake
to strengthen its financial position, the Company believes it will have sufficient liquidity to support its ongoing operations and meet
its financial obligations as they come due for at least the next twelve months. A significant decline in commodity prices could hamper
the Company’s ability to rectify its working capital deficit and potentially require the Company to seek other sources of funding. If
MANAGEMENT DISCUSSION AND ANALYSIS
2024
24
PINE CLIFF ENERGY LTD.
required, Pine Cliff will also consider reducing its dividend, additional short-term financing or issuing equity in order to meet its
future liabilities. Any of these events could affect Pine Cliff’s ability to fund ongoing operations.
The following table details the contractual maturities of Pine Cliff’s financial liabilities as at December 31, 2024:
2025
2026
2027
2028
2029
Thereafter
($000s)
Accounts payable and accrued liabilities
35,236
-
-
-
-
-
Demand loan
7,358
-
-
-
-
-
Term loan1
16,376
42,397
-
-
-
-
Lease obligations1
1,418
1,223
622
299
88
-
Total financial liabilities
60,388
43,620
622
299
88
-
1 These amounts include the notional principal and interest payments.
RISK FACTORS
Certain activities of the Company are affected by factors that are beyond its control or influence. Additional risks and uncertainties
that management may be unaware of, or that they determine to be immaterial, may also become important factors which affect the
Company. Along with the risks discussed in this MD&A, other business risks faced by the Company may be found under “Risk Factors”
in the Company’s most recent Annual Information Form which is available under the Company’s profile at www.sedarplus.ca or by
contacting the Company.
Environmental
All production phases of oil, NGLs and natural gas are subject to environmental regulation pursuant to a variety of Canadian federal,
provincial and municipal laws and regulations (collectively, the “Environmental Regulations”). Environmental Regulations provide
that wells, facility sites and other properties and practices associated with the company’s operations be constructed, operated,
maintained, abandoned, reclaimed and undertaken in accordance with the requirements set out therein. In addition, certain types of
operations, including exploration and development projects and changes to certain existing projects, may require the submission
and approval of environmental impact assessments or permit applications. Environmental Regulations impose, among other things,
costs, restrictions, liabilities and obligations in connection with the generation, handling, use, storage, transportation, treatment and
disposal of hazardous substances and waste and in connection with spills, releases and emissions of various substances in the
environment. They also impose restrictions, liabilities and obligations in connection with the management of water sources that are
being used, or whose use is contemplated, in connection with oil and gas operations. The complexities of changes in Environmental
Regulations make it difficult to predict the potential future impact to Pine Cliff.
Compliance with Environmental Regulations requires expenditures. Pine Cliff’s future capital expenditures and operating expenses
could increase as a result of, among other things, developments in the Company’s business, operations, plans and objectives and
changes to existing, or implementation of new, Environmental Regulations. Failure to comply with Environmental Regulations may
result in, among other things, the imposition of fines, penalties, environmental protection orders, suspension of operations, and could
adversely affect the Company’s reputation. The costs of complying with Environmental Regulations may have a material adverse
effect on Pine Cliff’s business, financial condition, results of operations and cash flows from operating activities. The implementation
of new Environmental Regulations or the modification of existing Environmental Regulations affecting the oil and natural gas
industry generally could reduce demand for crude oil and natural gas as well as shift hydrocarbon demand toward relatively lower
carbon sources, increase compliance costs, lengthen project implementation times, and have an adverse effect on Pine Cliff’s business,
financial condition, results of operations and cash flows.
Fiscal Environment
Resource industries are subject to payments to various levels of government, predominantly corporate income taxes to the federal
and provincial governments and royalties to provincial governments. A series of changes have had at times both positive and
negative effects but have certainly served to emphasize the materiality of this risk. There is potential for additional future changes
to the taxation and royalty regime in Alberta and Saskatchewan and corresponding changes in other jurisdictions where Pine Cliff
may operate has created uncertainty surrounding the ability to accurately estimate future taxation and royalties, resulting in
additional volatility and uncertainty in the oil and gas market. As a single company, Pine Cliff has no ability to mitigate this risk other
than through geographic diversification.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
25
PINE CLIFF ENERGY LTD.
North American tariffs
On February 1, 2025, President Trump signed an executive order announcing a 25% tariff on all goods originating in Canada and
imported into the U.S., along with a 10% tariff on “energy and energy resources” from Canada, including crude oil, natural gas, lease
condensates, natural gas liquids, and refined petroleum products, set to take effect on February 4, 2025. Canada responded by issuing
a surtax order on February 4, 2025, imposing a 25% surtax on an initial list of U.S. goods imported into Canada, with additional goods
to be considered following a public consultation period.
Although both countries initially agreed to delay the imposition of these measures for 30 days, the U.S. proceeded on March 4, 2025,
to impose its tariffs on Canadian goods. On the same day, Canada responded by imposing its surtax on the originally targeted U.S.
goods from the February 4 order. A 21-day consultation period has been opened by the Canadian government regarding an expanded
surtax order that could apply to an additional $200 billion worth of U.S. goods.
The risks disclosed in our MD&A for the year ended December 31, 2024, may be exacerbated by these trade tensions, including
market risks such as oil and gas price volatility, fluctuations in foreign exchange rates, and changes in the market price of common
shares, as well as risks related to hedging arrangements. Regulatory and political risks may also increase, including changes in
taxation, royalty structures, and other government legislation. Financing risks such as access to additional financing, debt
management, interest rate fluctuations, and foreign exchange exposure may also be heightened. Additionally, acquisition and
expansion risks, including those associated with geographic and industry diversification, as well as the risk of failing to realize
anticipated benefits from prior acquisitions, may become more pronounced.
Operational
This category encompasses several risks. Wells may produce at lower initial production rates than planned or face steeper decline
rates. Operating costs can increase due to such considerations as unanticipated workovers or higher than expected costs associated
with corrosion. Pine Cliff follows prudent industry practices with respect to insurance where practicable and as guided by external
experts but cannot fully insure against all risks. With respect to non-insurable operating risks, the Company has attempted to design
business process controls and accountability to identify problems at the earliest possible occasion and implement solutions.
However, investors must appreciate that operational risk is a characteristic of the business and can never be entirely eliminated.
Regulatory Risks
Regulatory risk is the risk of loss or lost opportunity resulting from the introduction of, or changes in, regulatory requirements or
the failure to secure regulatory approval for upstream or downstream development projects. The implementation of new regulations
or the modification of existing regulations could impact the Company’s existing and planned projects as well as result in increased
compliance costs, adversely impacting Pine Cliff’s financial condition, results of operations and cash flows.
The oil and gas industry in general and the Company’s operations in particular are subject to regulation and intervention under
federal, provincial, territorial, state and municipal legislation in Canada in matters such as, but not limited to: land tenure; permitting
of production projects; royalties; current and future income taxes; government fees; production rates; environmental protection
controls; protection of certain species or lands; provincial and federal land use designations; the reduction of greenhouse gases and
other emissions; the export of crude oil, natural gas and other products; the transportation of crude-by-rail or marine transport; the
awarding or acquisition of exploration and production, oil sands or other interests; the imposition of specific drilling obligations;
control over the development, abandonment and reclamation of fields (including restrictions on production) and/or facilities; and
possibly expropriation or cancellation of contract rights. Changes to government regulation could impact the Company’s existing and
planned projects or increase capital investment or operating expenses, adversely impacting Pine Cliff’s financial condition, results of
operations and cash flows from operating activities.
Reserves
Petroleum and natural gas reserves are used in the calculation of depletion, impairment and impairment reversals and are depleted
on a unit of production basis at a rate calculated by reference to proved and probable reserves determined in accordance with
National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities which incorporate the estimated future cost of
developing and extracting those reserves. Reserve estimates and their resulting cash flows are based on engineering data,
probability assessments of reserve recoveries, future prices and costs, future production rates, discount rates and the timing and
extent of future capital expenditures, all of which are subject to many uncertainties and interpretation. Management expects that
over time its reserve estimates will be revised, either upward or downward, based on updated information such as the results of
future drilling, production costs, testing and production levels and changes to forward petroleum and natural gas prices.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
26
PINE CLIFF ENERGY LTD.
Safety
The operation of Pine Cliff’s properties is subject to hazards of finding, recovering, transporting and processing hydrocarbons
including, but not limited to: blowouts; fires; explosions; gaseous leaks; migration of harmful substances; oil spills; corrosion; acts of
vandalism; and other accidents or hazards that may occur at or during transport to or from commercial or industrial sites. Any of
these hazards can interrupt operations, impact the Company’s reputation, cause loss of life or personal injury, result in loss of or
damage to equipment, property, information technology systems, related data and control systems, cause environmental damage
that may include polluting water, land or air, and may result in fines, civil suits, or criminal charges against Pine Cliff, any of which
may have a material adverse effect on Pine Cliff’s business, financial condition, results of operations, cash flows, and reputation.
Staffing
Pine Cliff functions in a very competitive environment for professional staff, and this staff is key to the Company’s ultimate success.
Recognizing this, Pine Cliff’s board of directors approved a competitive compensation program including bonuses based on the
annual adjusted funds flow performance of the Company, benefits and a stock option program to provide for long-term incentives
and to retain staff.
To date, Pine Cliff has found that it has been able to attract qualified individuals to complement its existing team and to build strength
in areas where required.
CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES
The timely preparation of the Financial Statements in accordance with IFRS requires Pine Cliff management to make judgments,
assumptions and estimates that affect the reported amounts of assets, liabilities, revenues, and expenses and the disclosure of
contingent assets and liabilities. Management believes that the most critical accounting policies that may have an impact on the
Company’s financial results are those that specifically relate to the accounting for its oil and gas interests, including amounts recorded
for depletion and the impairment test which are both based on estimates of proved and probable reserves, production rates, oil
prices, future costs and other relevant assumptions. Actual results could differ materially from such judgments or estimates.
Judgements
Cash Generating Units
CGUs are defined as the lowest grouping of integrated assets that generate identifiable cash inflows that are largely independent of
the cash inflows of other assets or groups of assets. The classification of assets into CGUs requires judgement and interpretations
with respect to the integration between assets, the existence of active markets, external users, share infrastructures and the way in
which management monitors Pine Cliff’s operations.
Impairment indicators
At each reporting date, the Company is required to assess whether there are any internal or external indicators that its petroleum
and natural gas properties and equipment within a CGU may be impaired or recovered. Pine Cliff is required to consider information
from both external sources (such as negative downturn in forecasted oil and gas commodity prices, significant adverse changes in
the technological, market, economic or legal environment in which the entity operates) and internal sources (such as downward
revisions in the estimate of proved and probable oil and gas reserves and the related cash flows, significant adverse effect on the
financial and operational performance of a CGU, evidence of obsolescence or physical damage to the asset). By their nature, these
assumptions are subject to management’s judgment.
Changing Regulation
Emissions, carbon and other regulations impacting climate and climate-related matters are constantly evolving. With respect to
environmental, social and governance and climate reporting, the International Sustainability Standards Board has issued IFRS
Sustainability Disclosure Standards with the aim to develop sustainability disclosure standards that are globally consistent,
comparable, and reliable. In addition, the Canadian Securities Administrators have issued a proposed National Instrument 51-107
Disclosure of Climate-related Matters. The cost to comply with these standards, and others that may be developed or evolve over
time, has not yet been quantified and it is possible that the long-term effects of these new regulations will affect the Company’s
business, results from operations, access to capital and financial condition.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
27
PINE CLIFF ENERGY LTD.
Estimates
Reserves
Petroleum and natural gas reserves are used in the calculation of depletion, impairment and impairment reversals and are depleted
on a unit of production basis at a rate calculated by reference to proved and probable reserves determined in accordance with
National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities which incorporate the estimated future cost of
developing and extracting those reserves. Reserve estimates and their resulting cash flows are based on engineering data,
probability assessments of reserve recoveries, future prices and costs, future production rates, discount rates and the timing and
extent of future capital expenditures, all of which are subject to many uncertainties and interpretation. Management expects that
over time its reserve estimates will be revised, either upward or downward, based on updated information such as the results of
future drilling, production costs, testing and production levels and changes to forward petroleum and natural gas prices.
Decommissioning provision
Decommissioning, abandonment and site reclamation expenditures will be incurred by the Company at the end of the operating life
of the Company’s facilities and properties. Decommissioning expenditures are uncertain and cost estimates can vary in response to
many factors including changes to relevant legal requirements, the emergence of new restoration techniques, experience at other
production sites, and changes to the risk-free discount rate and expected inflation rate. The expected timing and amount of
expenditures can also change, for example, in response to changes in reserves or changes in laws and regulations or their
interpretation. As a result, there could be significant adjustments to the provisions established which would affect future financial
results.
Share-based compensation
All equity-settled, share-based awards issued by the Company are recorded at fair value using the Black-Scholes option-pricing
model. In assessing the fair value of equity-based compensation, estimates have to be made regarding the expected volatility in share
price, option life, dividend yield, risk-free rate and estimated forfeitures at the initial grant date.
Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of
contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events.
Income tax
Tax regulations and legislation are subject to change and there are differing interpretations requiring management judgment.
Deferred tax assets are recognized when it is considered probable that deductible temporary differences will be recovered in future
periods. Deferred tax liabilities are recognized when it is considered probable that temporary differences will be payable to tax
authorities in future periods. Income tax filings are subject to audits and re-assessments and changes in facts, circumstances, and
interpretations of the standards may result in a material increase or decrease in the Company's provision for income taxes.
Impairment
The impairment calculation is based on significant assumptions of proved plus probable oil and natural gas reserves, production
rates, benchmark commodity prices, future costs, discount rates and other relevant assumptions. By their nature, these significant
assumptions are subject to measurement uncertainty and the impact on the financial statements of future periods could be material.
Future Accounting Pronouncements
The following are future accounting pronouncements issued and not yet effective as at December 31, 2024. The Company intends to
adopt this standard as it becomes effective and does not expect a significant impact.
IFRS 18 Presentation and Disclosure in Financial Statements (“IFRS 18”)
In January 2024, the International Accounting Standards Board (“IASB”) issued amendments to IFRS 18 – Presentation and
Disclosure in Financial Statements, which introduce new presentation requirements for specified categories and defined subtotals
in the statements of comprehensive income (loss), as well as enhanced disclosure requirements for management-defined
performance measures. The amendments aim to improve comparability and transparency in financial reporting by requiring more
structured and consistent presentation of financial performance across entities.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
28
PINE CLIFF ENERGY LTD.
The amendments to IFRS 18 will be effective for annual periods beginning on or after January 1, 2027, with earlier adoption
permitted. The Company is currently assessing the potential impact of these amendments on its Financial Statements.
CONTROL ENVIRONMENT
Disclosure controls and procedures
Disclosure controls and procedures (“DC&P”), as defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual
and Interim Filings, are designed to provide reasonable assurance that information required to be disclosed in the Company’s annual
filings, interim filings or other reports filed, or submitted by the Company under securities legislation is recorded, processed,
summarized and reported within the time periods specified under securities legislation and include controls and procedures
designed to ensure that information required to be so disclosed is accumulated and communicated to management, including the
Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), as appropriate, to allow timely decisions regarding required
disclosure. The CEO and the CFO of Pine Cliff evaluated the effectiveness of the design and operation of the Company’s DC&P. Based
on that evaluation, the CEO and CFO concluded that Pine Cliff’s DC&P were effective as at December 31, 2024.
Internal control over financial reporting
Internal control over financial reporting (“ICFR”), as defined in National Instrument 52-109, includes those policies and procedures
that:
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions
of assets of Pine Cliff;
•
are designed to provide reasonable assurance that transactions are recorded as necessary to permit preparation of
Financial Statements in accordance with generally accepted accounting principles and that receipts and expenditures of
Pine Cliff are being made in accordance with authorizations of management of Pine Cliff; and
•
are designed to provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use,
or disposition of the Company’s assets that could have a material effect on the Financial Statements.
The CEO and CFO have designed, or caused to be designed under their supervision, ICFR as defined in National Instrument 52-109
of the Canadian Securities Administrators, in order to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of Financial Statements for external purposes in accordance with IFRS. The control framework the Company
used to design its ICFR was in accordance with the Committee of Sponsoring Organizations of the Treadway Commission “COSO
2013”.
The Company’s CEO and CFO have evaluated, or caused to be evaluated under their supervision, the effectiveness of the Company’s
internal controls over financial reporting at the financial period end of the Company and concluded that such internal controls over
financial reporting are effective. It should be noted that while Pine Cliff’s CEO and CFO believe that the Company’s internal controls
and procedures provide a reasonable level of assurance and are effective, they do not expect that these controls will prevent all errors
and fraud. A control system, no matter how well conceived or operated, can provide only reasonable, not absolute, assurance that
its objectives are met.
NON-GAAP MEASURES
This MD&A uses the terms “adjusted funds flow”, “operating netbacks”, “corporate netbacks” “positive net cash” and “net debt” which
are not recognized measures under IFRS and may not be comparable to similar measures presented by other companies. The
Company uses these measures to evaluate its performance, leverage and liquidity. These measures should not be considered as an
alternative to, or more meaningful than, IFRS measures including income (loss), cash provided by operating activities, or total
liabilities.
Adjusted Funds Flow
The Company considers adjusted funds flow a key performance measure as it demonstrates the Company’s ability to generate the
funds necessary to repay debt and fund future growth through capital investment. Adjusted funds flow and adjusted funds flow per
Common Share and per Boe or Mcfe should not be considered as an alternative to, or more meaningful than, cash flow provided by
operating activities presented on the statement of cash flow which is considered the most directly comparable measure under IFRS.
Adjusted funds flow is calculated as cash provided by operating activities before changes in non-cash working capital and
decommissioning obligations settled. Adjusted funds flow per Common Share is calculated using the same weighted average number
of Common Shares outstanding as in the case of the income (loss) per Common Share calculation for a reporting period. Adjusted
MANAGEMENT DISCUSSION AND ANALYSIS
2024
29
PINE CLIFF ENERGY LTD.
funds flow per Boe or Mcfe is calculated using the sales volumes reported for a reporting period. Pine Cliff’s method of calculating
this measure may differ from other companies, and accordingly, it may not be comparable to measures used by other companies.
Three months ended December 31,
Year ended December 31,
($000s)
2024
2023
Change
2024
2023
Change
Cash provided by operating activities
518
16,559
(97)
23,795
66,627
(64)
Adjusted by:
Change in non-cash working capital
4,726
(10,353)
(146)
7,853
(17,433)
(145)
Decommissioning obligations settled
3,364
3,494
(4)
6,369
9,493
(33)
Adjusted funds flow
8,608
9,700
(11)
38,017
58,687
(35)
Adjusted funds flow ($/Boe)
4.11
4.91
(16)
4.48
7.77
(42)
Adjusted funds flow ($/Mcfe)
0.69
0.82
(16)
0.75
1.30
(42)
Adjusted funds flow – basic
($/Common Share)
0.02
0.03
(33)
0.11
0.17
(35)
Adjusted funds flow – diluted
($/Common Share)
0.02
0.03
(33)
0.11
0.16
(31)
Operating and Corporate Netback
The Company considers operating netback to be a key indicator of profitability relative to current commodity prices. Operating
netback and operating netback per Boe and per Mcfe are calculated as the sum of commodity sales and processing and gathering
income, less royalties, transportation and operating expenses on an absolute and a per Boe or per Mcfe basis, respectively. Company
management uses operating netback on a per Boe basis in operational and capital allocation decisions.
The Company considers corporate netback to be a key indicator of overall results. Corporate netback on an absolute dollar and
corporate netback per Boe and per Mcfe are calculated as operating netback, plus interest income, less G&A and interest expense.
Pine Cliff uses these measures to assist in understanding the Company’s ability to generate cash provided by operating activities at
current commodity prices and it provides an analytical tool to benchmark changes in operational performance against prior periods.
Readers are cautioned, however, that these measures should not be construed as an alternative to other terms such as income (loss)
determined in accordance with IFRS as a measure of performance. Pine Cliff’s method of calculating these measures may differ from
other companies, and accordingly, it may not be comparable to measures used by other companies.
Three months ended December 31,
Year ended December 31,
2024
2023
$ Change
2024
2023
$ Change
($ per Boe, unless otherwise indicated)
Commodity sales
22.51
23.03
(0.52)
22.34
25.04
(2.70)
Processing and gathering
0.66
0.75
(0.09)
0.65
0.68
(0.03)
Royalty expense
(2.20)
(2.63)
0.43
(1.81)
(2.65)
0.84
Transportation costs
(1.42)
(1.45)
0.03
(1.39)
(1.43)
0.04
Operating expenses
(13.24)
(13.66)
0.42
(13.12)
(13.07)
(0.05)
Operating netback
6.31
6.04
0.27
6.67
8.57
(1.90)
General and administrative
(1.11)
(1.03)
(0.08)
(1.21)
(0.99)
(0.22)
Interest and bank charges
(1.09)
(0.26)
(0.83)
(0.98)
(0.10)
(0.88)
Interest income
-
0.16
(0.16)
-
0.29
(0.29)
Corporate netback
4.11
4.91
(0.80)
4.48
7.77
(3.29)
Operating netback ($ per Mcfe)
1.05
1.01
0.04
1.11
1.43
(0.32)
Corporate netback ($ per Mcfe)
0.69
0.82
(0.13)
0.75
1.30
(0.55)
MANAGEMENT DISCUSSION AND ANALYSIS
2024
30
PINE CLIFF ENERGY LTD.
Positive Net Cash/Net Debt
The Company considers positive net cash/net debt to be a key indicator of leverage. Positive net cash/net debt is calculated as the
sum of accounts receivable, cash, investments and prepaid expenses and deposits, less Demand Loan, Term Loan and accounts
payable and accrued liabilities. See “DEBT, LIQUIDITY AND CAPITAL RESOURCES” section for the table.
Positive net cash/net debt is not a recognized measure under IFRS and Pine Cliff’s method of calculating this measure may differ
from other companies, and accordingly, it may not be comparable to measures used by other companies.
FORWARD-LOOKING INFORMATION
Certain statements contained in this MD&A include statements which contain words such as “anticipate”, “could”, “should”, “expect”,
“seek”, “may”, “intend”, “likely”, “will”, “believe” and similar expressions, statements relating to matters that are not historical facts,
and such statements of our beliefs, intentions and expectations about developments, results and events which will or may occur in
the future, constitute “forward-looking information” within the meaning of applicable Canadian securities legislation and are based
on certain assumptions and analysis made by us derived from our experience and perceptions. Forward-looking information in the
MD&A and Annual MD&A includes, but is not limited to: expected production levels, expected processing and gathering income,
expected operating costs, expected transportation costs, expected interest costs, royalty and G&A levels; expected current and
deferred income taxes, future capital expenditures, including the amount and nature thereof; future drilling opportunities and Pine
Cliff’s ability to generate reserves and production from the undrilled locations; oil and natural gas prices and demand; expansion and
other development trends of the oil and natural gas industry; business strategy and guidance; expansion and growth of our business
and operations; amounts due pursuant to Term Loan, Demand Loan and repayment thereof; maintenance of existing customer,
supplier and partner relationships; supply channels; accounting policies; risks; Pine Cliff’s ability to generate cash provided by
operating activities and adjusted funds flow; dividends payments; and other such matters.
All such forward-looking information is based on certain assumptions and analyses made by us in light of our experience and
perception of historical trends, current conditions and expected future developments, as well as other factors we believe are
appropriate in the circumstances. The risks, uncertainties and assumptions are difficult to predict and may affect operations, and
may include, without limitation: foreign exchange fluctuations; equipment and labour shortages and inflationary costs; general
economic conditions; industry conditions; changes in applicable environmental, taxation and other laws and regulations as well as
how such laws and regulations are interpreted and enforced; the ability of oil and natural gas companies to raise capital; the effect
of weather conditions on operations and facilities; the existence of operating risks; volatility of oil and natural gas prices; oil and gas
product supply and demand; risks inherent in the ability to generate sufficient cash provided by operating activities to meet current
and future obligations; increased competition; stock market volatility; opportunities available to or pursued by us; and other factors,
many of which are beyond our control. The foregoing factors are not exhaustive.
Actual results, performance or achievements could differ materially from those expressed in, or implied by, this forward-looking
information and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking information will
transpire or occur, or if any of them do, what benefits will be derived there from. Except as required by law, Pine Cliff disclaims any
intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events
or otherwise.
Undrilled locations consist of drilling and recompletion locations booked in the independent reserve report dated March 5, 2025
prepared by McDaniel & Associates Consultants Limited and unbooked drilling and recompletion locations. Unbooked drilling and
recompletion locations are internal estimates based on evaluation of geologic, reserves and spacing based on industry
practice. There is no guarantee that Pine Cliff will drill these locations and there is no certainty that the drilling or completing of
these locations will result in additional reserves and production or achieve expected internal rates of return. Pine Cliff activity
depends on availability of capital, regulatory approvals, commodity prices, drilling costs and other factors.
NGLs and oil volumes are recorded in barrels of oil (“Bbl”) and are converted to a thousand cubic feet equivalent (“Mcfe”) using a
ratio of one (1) Bbl to six (6) thousand cubic feet. Natural gas volumes recorded in thousand cubic feet (“Mcf”) are converted to
barrels of oil equivalent (“Boe”) using the ratio of six (6) thousand cubic feet to one (1) Bbl. This conversion ratio is based on energy
equivalence primarily at the burner tip and does not represent a value equivalency at the wellhead. The terms Boe or Mcfe may be
misleading, particularly if used in isolation.
Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy
equivalency of oil, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
The forward-looking information contained in this MD&A is expressly qualified by this cautionary statement.
MANAGEMENT DISCUSSION AND ANALYSIS
2024
31
PINE CLIFF ENERGY LTD.
GLOSSARY
The following is a list of abbreviations that may be used in the MD&A:
Measurement
Bbl/d1 – barrels per day
Boe/d1 – barrels of oil equivalent per day
Mcf/d1 – thousand cubic feet per day
Mcfe/d1 – thousand cubic feet equivalent per day
MBoe – thousands of barrels of oil equivalent
1Pine cliff has adopted the standard natural gas liquids (“NGLs”) and crude oil volumes are recorded in barrels of oil (“Bbl”) and are
converted to a thousand cubic feet equivalent (“Mcfe”) using a ratio of one (1) Bbl to six (6) thousand cubic feet. Natural gas volumes
recorded in thousand cubic feet (“Mcf”) are converted to barrels of oil equivalent (“Boe”) using the ratio of six (6) thousand cubic
feet to one (1) Bbl. This conversion ratio is based on energy equivalence primarily at the burner tip and does not represent a value
equivalency at the wellhead. The terms MBoe, Boe or Mcfe may be misleading, particularly if used in isolation.
Given that the value ratio based on the current price of crude oil as compared to natural gas is significantly different from the energy
equivalency of oil, utilizing a conversion on a 6:1 basis may be misleading as an indication of value.
Financial and Business Environment
AECO – Alberta Energy Company
CGU – Cash Generating Unit
GJ - Gigajoule
NGTL – Nova Gas Transmission Line
WTI – West Texas Intermediate
MMBtu – One million British Thermal Units
MBbl – Thousands of barrels of oil
MBoe – Thousands of barrels of oil equivalent
MMBbl – Millions of barrels of oil
MMcf – Millions of cubic feet
MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS
2024
32
PINE CLIFF ENERGY LTD.
The management of Pine Cliff Energy Inc. (the “Company”) is responsible for the financial information and operating data presented
in this financial report. The consolidated financial statements (the “Financial Statements”) have been prepared by management in
accordance with IFRS® Accounting Standards as issued by the International Accounting Standards Board (“IASB®”) and utilize the best
estimates and careful judgements of management where appropriate. Operational and other financial information contained
throughout the annual report is consistent with that provided in the Financial Statements.
Management has developed and maintains a system of internal controls designed to provide reasonable assurance that all transactions
are accurate and reliably recorded, that the Financial Statements accurately report the Company’s operating and financial results
within acceptable limits of materiality, that all other operational and financial information presented is accurate and that the
Company’s assets are properly safeguarded.
The Audit Committee, comprised of non-management directors, acts on behalf of the Board of Directors to ensure that management
fulfills its financial reporting and internal control responsibilities. The Audit Committee meets regularly with management and the
external auditors to discuss financial reporting and internal control matters and ensures each party is properly discharging its
responsibilities. The Audit Committee reviewed the Financial Statements with management and the external auditors and
recommended approval to the Board of Directors, who approved these Financial Statements.
The Financial Statements have been audited by Deloitte LLP, Chartered Professional Accountants, in accordance with generally
accepted auditing standards on behalf of the shareholders and have unlimited and unrestricted access to the Audit Committee.
“Signed Philip B. Hodge”
“Signed Kristopher B. Zack”
Philip B. Hodge, President and Chief Executive Officer
Kristopher B. Zack, Chief Financial Officer and Corporate Secretary
INDEPENDENT AUDITOR’S REPORT
2024
33
PINE CLIFF ENERGY LTD.
Independent Auditor’s Report
To the Shareholders and the Board of Directors of Pine Cliff Energy Ltd.
Opinion
We have audited the consolidated financial statements of Pine Cliff Energy Ltd. (the "Company"), which comprise the consolidated
statements of financial position as at December 31, 2024 and 2023, and the consolidated statements of comprehensive income (loss),
consolidated statements of changes in shareholders’ equity (deficit) and consolidated statements of cash flows for the years then
ended, and notes to the consolidated financial statements, including material accounting policy information (collectively referred to as
the "financial statements").
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as
at December 31, 2024 and 2023, and its financial performance and its cash flows for the years then ended in accordance with IFRS
Accounting Standards as issued by the International Accounting Standards Board (“IASB”).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards ("Canadian GAAS"). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our
report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial
statements in Canada, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements for the year ended December 31, 2024. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.
Property, Plant and Equipment - Oil and gas properties - Refer to Notes 3 and 7 to the financial statements
Key Audit Matter Description
The Company’s property, plant and equipment includes oil and gas properties. Oil and gas properties are depleted using the unit-of
production method (“depletion”) over their proved and probable reserves. The Company engages an independent reserve evaluator
to estimate reserves using estimates, assumptions and engineering data. The Company assesses at each reporting date whether there
is an indicator of impairment or impairment reversal. If an indicator exists, the Company estimates the recoverable amount of the cash
generating unit (“CGU”), which is the higher of fair value less costs to sell or value in use. The determination of (1) the Company’s
proved and probable reserves used to determine depletion and (2) the recoverable amount of a CGU requires management to make
significant estimates and assumptions related to future commodity prices, the discount rate, future production rates, and future
operating and development costs. The Company identified indicators of impairment related to all CGUs and recorded an impairment
in the Edson CGU.
Given the significant judgments made by management related to future commodity prices, the discount rate, future production rates,
and future operating and development costs used to determine depletion of all oil and gas properties and the recoverable amount of
the Edson CGU, these estimates and assumptions are subject to a high degree of estimation uncertainty. Auditing these estimates and
assumptions required auditor judgment in applying audit procedures and in evaluating the results of those procedures. This resulted
in an increased extent of audit effort and the involvement of fair value specialists.
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related to future commodity prices, the discount rate, future production rates, and future operating and
development costs used to determine depletion of all oil and gas properties and the recoverable amount of the Edson CGU included
the following, among others:
•
Evaluated future commodity prices by independently developing a reasonable range of forecasts based on reputable third-
party forecasts and market data and comparing those to the future commodity prices selected by management;
INDEPENDENT AUDITOR’S REPORT
2024
34
PINE CLIFF ENERGY LTD.
•
With the assistance of fair value specialists, evaluated the reasonableness of the discount rate by developing a range of
independent estimates and comparing those to the discount rate selected by management;
•
Assessed future production rates by evaluating the Company’s independent external reserve evaluator by:
o
Examining reports and assessing their scope of work and findings;
o
Assessing the competence, capability and objectivity by evaluating their relevant professional qualifications and
experience;
•
Evaluated the reasonableness of future production rates by testing the source financial information underlying the rates and
comparing the future production volumes to historical production volumes;
•
Evaluated the reasonableness of future operating and development costs by testing the source financial information
underlying the estimate, comparing future costs to historical results, and evaluating whether they are consistent with
evidence obtained in other areas of the audit.
Deferred Income Taxes — Refer to Notes 3 and 9 to the financial statements
Key Audit Matter Description
The Company recognizes deferred income taxes for the tax expected to be payable or recoverable on differences arising between the
financial statement and tax basis of assets and liabilities and is recorded at enacted or substantively enacted tax rates in effect for the
years in which the differences are expected to be realized. The Company recognized a deferred income tax asset primarily arising from
unused tax losses.
To determine whether it is probable that the deferred income tax assets will be realized, management makes assumptions related to
the forecasts of future taxable income, specifically forecasts of future commodity prices, future production rates, and future operating
and development costs. As a result of the significant measurement uncertainty, auditing the probability of the deferred income tax
assets being realized and the forecast of future taxable income required a high degree of auditor judgment, which resulted in an
increased extent of audit effort.
How the Key Audit Matter Was Addressed in the Audit
Our audit procedures related to the assessing the probability of the deferred income tax assets being realized and management’s
forecasts of future taxable income included the following, among others:
•
Evaluated forecasts of future taxable income, specifically forecasts of future commodity prices, future production rates, and
future operating and development costs by performing the audit procedures described above in the Property, Plant and
Equipment – Oil and gas properties Key Audit Matter;
•
Evaluating whether management’s estimates of future taxable income are consistent with the requirements of IAS 12 -
Income Taxes relating to the probability of forecasted taxable income and the length of the forecasted period.
Other Information
Management is responsible for the other information. The other information comprises:
•
Management's Discussion and Analysis
•
The information, other than the financial statements and our auditor’s report thereon, in the Annual Report.
Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion
thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above
and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated.
We obtained Management’s Discussion and Analysis and the Annual Report prior to the date of this auditor’s report. If, based on the
work we have performed on this other information, we conclude that there is a material misstatement of this other information, we
are required to report that fact in this auditor’s report. We have nothing to report in this regard.
Responsibilities of Management and Those Charged with Governance for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS Accounting
Standards as issued by the IASB , and for such internal control as management determines is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
INDEPENDENT AUDITOR’S REPORT
2024
35
PINE CLIFF ENERGY LTD.
In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either
intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Auditor's Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high
level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian GAAS will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial
statements.
As part of an audit in accordance with Canadian GAAS, we exercise professional judgment and maintain professional skepticism
throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and
perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a
basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal
control.
•
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
•
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to
draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Company to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether
the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
•
Plan and perform the group audit to obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business units within the Company as a basis for forming an opinion on the financial statements. We are
responsible for the direction, supervision and review of the audit work performed for purposes of the group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in
the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these
matters in our auditor's report unless law or regulation precludes public disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so
would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Christopher Gill.
/s/ Deloitte LLP
Chartered Professional Accountants
Calgary, Alberta
March 5, 2025
CONSOLIDATED FINANCIAL STATEMENTS
2024
36
PINE CLIFF ENERGY LTD.
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Canadian dollars, 000s)
Note
2024
As at December 31,
2023
ASSETS
Current assets
Accounts receivable
5
23,702
23,657
Prepaid expenses and deposits
5,722
7,321
Investments
-
208
Total current assets
29,424
31,186
Property, plant and equipment
7
302,452
402,295
Deferred income taxes
9
49,375
43,591
Total assets
381,251
477,072
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities
5
35,236
43,840
Term loan
10
11,357
8,440
Demand loan
11
7,358
4,002
Lease liabilities
8
1,287
1,119
Decommissioning provision
12
7,500
7,100
Total current liabilities
62,738
64,501
Lease liabilities
8
2,026
1,995
Term loan
10
37,796
46,583
Decommissioning provision
12
224,367
264,065
Total liabilities
326,927
377,144
SHAREHOLDERS' EQUITY
Share capital
13
278,982
278,623
Contributed surplus
21,422
18,746
Accumulated other comprehensive loss
(249)
(224)
Deficit
(245,831)
(197,217)
Total shareholders' equity
54,324
99,928
Total liabilities and shareholders' equity
381,251
477,072
Commitments (Note 19)
Subsequent events (Note 21)
The accompanying notes are an integral part of these consolidated financial statements.
The consolidated financial statements were approved by the Board of Directors and signed on its behalf by:
“Signed Philip B. Hodge”
“Signed Calvin B. Jacober”
Philip B. Hodge, President & CEO
Calvin B. Jacober, Chair of the Audit Committee
and Director
and Director
CONSOLIDATED FINANCIAL STATEMENTS
2024
37
PINE CLIFF ENERGY LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Canadian dollars, 000s except per share data)
Years ended December 31,
Note
2024
2023
REVENUE
Commodity sales
14
190,118
188,852
Royalty expense
(15,426)
(19,963)
Commodity sales, net of royalties
174,692
168,889
Processing and gathering
5,509
5,159
Interest income
-
2,212
Total revenue
180,201
176,260
EXPENSES
Operating
111,672
98,535
Transportation
11,867
10,810
Depletion and depreciation
7
53,669
43,928
Impairment
7
7,000
2,447
Share-based compensation
13
2,982
2,856
Finance
15
17,399
7,630
General and administrative
16
10,300
7,495
Gain on disposition
7
(7,450)
-
Total expenses
207,439
173,701
Income (loss) before income taxes
(27,238)
2,559
Deferred income taxes
9
5,792
6,562
NET INCOME (LOSS) FOR THE YEAR
(21,446)
9,121
OTHER COMPREHENSIVE LOSS
Unrealized gain (loss) on investments
-
86
Realized loss on investments
(25)
(102)
Deferred income tax on unrealized loss on investments
-
8
OTHER COMPREHENSIVE LOSS, NET OF TAX
(25)
(8)
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR
(21,471)
9,113
Net income (loss) per share ($)
Basic and Diluted
13
(0.06)
0.03
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED FINANCIAL STATEMENTS
2024
38
PINE CLIFF ENERGY LTD.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(Canadian dollars, 000s)
Note
Share
capital
Contributed
surplus1
Accumulated
other
comprehensive
loss2
Deficit
Total
Shareholders’
equity
BALANCE AT DECEMBER 31, 2022
277,650
16,617
(216)
(160,323)
133,728
Net income for the year
-
-
-
9,121
9,121
Dividends
13
-
-
-
(46,015)
(46,015)
Share-based compensation
-
2,856
-
-
2,856
Other comprehensive loss, net of tax
-
-
(8)
-
(8)
Exercise of stock options
13
973
(727)
-
-
246
BALANCE AT DECEMBER 31, 2023
278,623
18,746
(224)
(197,217)
99,928
Net loss for the year
-
-
-
(21,446)
(21,446)
Dividends
13
-
-
-
(25,597)
(25,597)
Tax on excessive eligible dividends
-
-
-
(1,571)
(1,571)
Share-based compensation
-
2,982
-
-
2,982
Other comprehensive loss, net of tax
-
-
(25)
-
(25)
Exercise of stock options
13
359
(306)
-
-
53
BALANCE AT DECEMBER 31, 2024
278,982
21,422
(249)
(245,831)
54,324
1Contributed surplus is comprised of share-based compensation.
2Accumulated other comprehensive loss is comprised of realized and unrealized losses on financial assets held at fair value through other comprehensive
loss.
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED FINANCIAL STATEMENTS
2024
39
PINE CLIFF ENERGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Canadian dollars, 000s)
Years ended December 31,
Note
2024
2023
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income (loss) for the year
(21,446)
9,121
Items not affecting cash:
Depletion and depreciation
53,669
43,928
Impairment
7
7,000
2,447
Share-based compensation
13
2,982
2,856
Finance expenses
15
17,399
7,630
Deferred income taxes
9
(5,792)
(6,562)
Gain on disposition
7
(7,450)
-
Interest and bank charges
15
(8,345)
(733)
Decommissioning obligations settled
12
(6,369)
(9,493)
Changes in non-cash working capital accounts
15
(7,853)
17,433
Cash provided by operating activities
23,795
66,627
FINANCING ACTIVITIES
Exercise of stock options
13
53
246
Term loan, net of issuance costs
10
(6,330)
55,000
Demand loan
11
3,356
4,002
Dividends
13
(25,597)
(46,015)
Tax on excessive eligible dividends
(1,571)
-
Payments on lease obligations
8
(2,045)
(1,086)
Changes in non-cash working capital accounts
15
1,571
-
Cash provided by (used in) financing activities
(30,563)
12,147
INVESTING ACTIVITIES
Property, plant and equipment
7
(2,529)
(20,932)
Dispositions
7
10,519
379
Acquisitions
7
(645)
(109,326)
Exploration and evaluation
-
(34)
Proceeds on sale of investments
191
315
Changes in non-cash working capital accounts
15
(768)
(3,604)
Cash provided by (used in) investing activities
6,768
(133,202)
Decrease in cash
-
(54,428)
Cash - beginning of year
-
54,428
CASH - END OF YEAR
-
-
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED FINANCIAL STATEMENTS
2024
40
PINE CLIFF ENERGY LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
As at December 31, 2024 and 2023 and for the years then ended
(all tabular amounts in Canadian dollars 000s, unless otherwise indicated)
1. NATURE OF BUSINESS
Pine Cliff Energy Ltd. (“Pine Cliff” or the “Company”) is a public company listed on the Toronto Stock Exchange (“TSX”) and
incorporated under the Business Corporations Act (Alberta). The address of the Company’s registered office is Suite 850, 1015 - 4th
Street SW, Calgary, Alberta, T2R 1J4.
Pine Cliff is engaged in the acquisition, exploration, development and production of natural gas and crude oil in the Western Canadian
Sedimentary Basin and conducts many of its activities jointly with others; these consolidated financial statements (the “Financial
Statements”) reflect only the Company’s proportionate interest in such activities.
2. BASIS OF PREPARATION
a) Statement of Compliance
These consolidated financial statements have been prepared in accordance with IFRS® Accounting Standards as issued by the
International Accounting Standards Board (“IASB®”) as at and for the year ended December 31, 2024, including 2023 comparative
periods.
The policies applied in these consolidated financial statements are based on international financial reporting standards (“IFRS”) issued
and outstanding as of March 5, 2025, the date the Board of Directors approved the statements.
b) Basis of measurement
The Financial Statements have been prepared on a historical cost basis, except for certain financial instruments and share-based
payment transactions which are measured at fair value. The methods used to measure fair values are discussed in note 5.
c)
Functional and presentation currency
The Company’s functional and presentation currency is the Canadian dollar.
d) Use of judgements and estimates
The timely preparation of the Financial Statements in accordance with IFRS Accounting Standards as issued by the ISAB (“IFRS”)
requires Pine Cliff management to make judgements, estimates and assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, revenue and expenses as well as the disclosure of contingent assets and liabilities as at the
date of the statements of financial position. Actual results could differ materially from estimated amounts and affect the results
reported in the Financial Statements. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
accounting estimates are recognized in the year in which the estimates are revised.
Information about significant areas of estimation uncertainty in applying accounting principles that have the most significant effect on
the amounts recognized in the Financial Statements are included in the notes.
Judgements
In the process of applying Pine Cliff’s accounting policies, judgements, apart from those involving estimates, have been made, of which
the following may have the most significant effect on the amounts recognized in the Financial Statements:
Note 5 – Financial instruments
Note 7 – Property, plant and equipment (“PP&E”)
Note 9 – Deferred income taxes
Note 12 – Decommissioning provision
Note 13 – Share capital
Cash Generating Units
Cash generating units (“CGUs”) are defined as the lowest grouping of integrated assets that generate identifiable cash inflows that are
largely independent of the cash inflows of other assets or groups of assets. The classification of assets into CGUs requires judgement
CONSOLIDATED FINANCIAL STATEMENTS
2024
41
PINE CLIFF ENERGY LTD.
and interpretations with respect to the integration between assets, the existence of active markets, external users, share
infrastructures and the way in which management monitors Pine Cliff’s operations.
Impairment indicators
At each reporting date, the Company is required to assess whether there are any internal or external indicators that its petroleum and
natural gas properties and equipment within a CGU may be impaired or recovered. Pine Cliff is required to consider information from
both external sources (such as negative downturn in forecasted oil and gas commodity prices, significant adverse changes in the
technological, market, economic or legal environment in which the entity operates) and internal sources (such as downward revisions
in the estimate of proved and probable oil and gas reserves and the related cash flows, significant adverse effect on the financial and
operational performance of a CGU, evidence of obsolescence or physical damage to the asset). By their nature, these assumptions are
subject to management’s judgment.
Estimates
Reserves
Petroleum and natural gas reserves are used in the calculation of depletion, impairment and impairment reversals and are depleted
on a unit of production basis at a rate calculated by reference to proved and probable reserves determined in accordance with National
Instrument 51-101 Standards of Disclosure for Oil and Gas Activities which incorporate the estimated future cost of developing and
extracting those reserves. Reserve estimates and their resulting cash flows are based on engineering data, probability assessments of
reserve recoveries, future prices and costs, future production rates, discount rates and the timing and extent of future capital
expenditures, all of which are subject to many uncertainties and interpretation. Management expects that over time its reserve
estimates will be revised, either upward or downward, based on updated information such as the results of future drilling, production
costs, testing and production levels and changes to forward petroleum and natural gas prices.
Decommissioning provision
Decommissioning, abandonment and site reclamation expenditures will be incurred by the Company at the end of the operating life of
the Company’s facilities and properties. Decommissioning expenditures are uncertain and cost estimates can vary in response to many
factors including changes to relevant legal requirements, the emergence of new restoration techniques, experience at other production
sites, and changes to the risk-free discount rate and expected inflation rate. The expected timing and amount of expenditures can also
change, for example, in response to changes in reserves or changes in laws and regulations or their interpretation. As a result, there
could be significant adjustments to the provisions established which would affect future financial results.
Share-based compensation
All equity-settled, share-based awards issued by the Company are recorded at fair value using the Black-Scholes option-pricing model.
In assessing the fair value of equity-based compensation, estimates have to be made regarding the expected volatility in share price,
option life, dividend yield, risk-free rate and estimated forfeitures at the initial grant date.
Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of
contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events.
Income tax
Tax regulations and legislation are subject to change and there are differing interpretations requiring management judgment. Deferred
tax assets are recognized when it is considered probable that deductible temporary differences will be recovered in future periods.
Deferred tax liabilities are recognized when it is considered probable that temporary differences will be payable to tax authorities in
future periods. Income tax filings are subject to audits and re-assessments and changes in facts, circumstances, and interpretations of
the standards may result in a material increase or decrease in the Company's provision for income taxes.
Impairment
The impairment calculation is based on significant assumptions of proved plus probable oil and natural gas reserves, production rates,
benchmark commodity prices, future costs, discount rates and other relevant assumptions. By their nature, these significant
assumptions are subject to measurement uncertainty and the impact on the financial statements of future periods could be material.
CONSOLIDATED FINANCIAL STATEMENTS
2024
42
PINE CLIFF ENERGY LTD.
3. MATERIAL ACCOUNTING POLICIES
The accounting policies set out below have been applied consistently to all periods presented in the Financial Statements.
a) Basis of consolidation
The Financial Statements include the accounts of Pine Cliff and its wholly owned subsidiary Pine Cliff Border Pipelines Limited. All
intercompany balances, transactions and income or losses are eliminated on consolidation.
b) Revenue recognition
Revenue associated with the sale of natural gas, crude oil and natural gas liquids (“NGLs”) is measured based on the consideration
specified in contracts with customers. Revenue from contracts with customers is recognized when Pine Cliff satisfies a performance
obligation by transferring a promised good or service to a customer. A good or service is transferred when the customer obtains control
of that good or service. The transfer of control of natural gas, crude oil and NGLs coincides with legal title passing to the customer and
the customer taking physical possession.
The collection of revenue associated with the sale of natural gas, NGLs and crude oil occurs on or about the 25th of the month following
production.
Revenues from fees charged to third parties for product processing and gathering services provided at facilities are recorded as these
services are provided.
Income from interest on cash on hand is recognized when earned.
c)
Joint arrangements
Pine Cliff conducts significant portions of its oil and gas operations through jointly controlled operations and the Financial Statements
reflect only the Company’s proportionate interest in such activities. Contractual arrangements for the Company’s jointly controlled
operations, where it does not have a 100% working interest, govern that the partners have rights to the assets and obligations for the
liability. It is possible that at some future date allocation adjustments to revenues and expenditures could result from revised billings,
audit or litigation with these other participants. Pine Cliff does not have any joint arrangements that are individually material to the
Company or that are structured through joint venture arrangements.
d) Property, plant and equipment
PP&E include developed assets acquired, transferred-in exploration and evaluation costs, development drilling, right-of-use assets and
other surface expenditures. PP&E assets are carried at cost less accumulated depletion and depreciation and impairment. The initial
cost of an asset is comprised of its purchase price, construction cost or estimated lease payments over the term of a lease, including
expenditures such as drilling costs, the present value of the initial and changes in the estimate of any decommissioning obligation
associated with the asset, expenses on qualifying assets and costs that are directly attributable to bringing the asset to the location and
condition necessary to operate as intended by management and which result in an identifiable future benefit. Improvements that
increase capacity or extend the useful lives of the assets are capitalized.
Expenditures on major maintenance of producing assets include the cost of replacement assets or parts of assets, plant turnaround
costs, or major overhaul costs. Where an asset, or part of an asset that was separately depreciated, is replaced and it is probable that
there are future economic benefits associated with the item, the expenditure is capitalized and the carrying amount of the replaced
item is derecognized.
Subsequent costs incurred to the determination of technical feasibility and commercial viability are recognized as PP&E when they
increase the future economic benefits in the specific asset to which they relate. Such capitalized developed and producing petroleum
and natural gas interests generally represent costs incurred in developed proved and/or probable reserves and bringing in or
enhancing production from such reserves. The cost of day-to-day servicing petroleum and natural gas properties and equipment is
expensed as incurred.
Gains and losses on disposal of PP&E are determined as the difference between proceeds from disposal and the carrying amount of the
asset sold and are recognized as a gain or loss on disposal in the statements of comprehensive income (loss).
e) Lease obligations
Lease obligations are initially measured at the present value of the lease payments at the commencement date, discounted using the
interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate for that asset.
CONSOLIDATED FINANCIAL STATEMENTS
2024
43
PINE CLIFF ENERGY LTD.
Generally, the Company uses the implicit interest rate of the lease. The lease obligation is subsequently increased by the interest cost
on the lease liability and decreased by lease payments made.
All leases are accounted for by recognizing a right-of-use asset and a lease liability except for leases of low value assets and leases with
a duration of 12 months or less.
f)
Depletion and depreciation
When commercial production has commenced in an area, PP&E assets, including estimated future development costs, are depleted
using the unit-of-production method over their proved plus probable reserve life. Plant turnarounds and major overhauls are
depreciated over their expected life. Other equipment is depreciated over estimated useful lives on a straight-line basis. Depletion and
depreciation is recognized in the consolidated statements of comprehensive income (loss).
Depletion and depreciation methods, useful lives and residual values are reviewed annually, with any amendments considered to be
changes in estimates and accounted for prospectively.
g) Impairment of PP&E
The carrying amounts of the Company's PP&E assets are reviewed at the end of each reporting period to determine whether there is
any indication of impairment. If such indication exists, then the assets’ carrying amounts are assessed for impairment. For the purpose
of impairment testing, assets that are not evaluated individually are grouped together into cash generated units (“CGU’s”).
The recoverable amount of an asset or a CGU is the greater of its fair value less costs of disposal (“FVLCD”) and value-in-use (“VIU”).
An impairment is recognized if the carrying amount of an asset or its CGU exceeds its recoverable amount. In assessing the carrying
value of its unproved properties, the Company considers future plans for those properties, the remaining terms of the leases and other
factors that may be indicators of potential impairment. Impairment is recognized in the statements of comprehensive income (loss).
Impairment recognized in respect of a CGU is allocated first to reduce the carrying amount of any goodwill allocated to the CGU.
Impairment recognized in prior periods are assessed at each reporting date for any indications that the impairment has decreased or
no longer exists. If the amount of the impairment decreases in a subsequent period and the decrease can be objectively related to an
event occurring after the impairment was recognized, the impairment is reversed only to the extent that the asset’s carrying amount
does not exceed the carrying amount that would have been determined, net of depletion and depreciation, if no impairment had been
recognized.
h) Impairment of financial assets
Impairment of financial assets is determined by measuring the assets’ expected credit loss (“ECL”). The ECL pertaining to accounts
receivable is assessed at initial recognition and this provision is re-assessed at each reporting date. A financial asset is considered to
be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash provided
by operating activities of that asset. Financial assets are tested for impairment on an individual basis. An impairment in respect of a
financial asset held at fair value through other comprehensive income (loss) is calculated by reference to its current fair value.
Impairment is recognized in the consolidated statements of comprehensive income (loss). Impairment is reversed if there is an
indicator that the impairment reversal can be related objectively to an event occurring after the impairment was recognized. For
financial assets measured at amortized cost, the reversal is recognized in the consolidated statements of comprehensive income (loss).
i)
Decommissioning provision
The Company recognizes a decommissioning provision in the period in which it has a present legal or constructive liability and a
reasonable estimate of the amount can be made. On a periodic basis, Pine Cliff management reviews these estimates, and changes, if
any, are prospectively applied. The decommissioning provision is recorded as a liability, with a corresponding increase to the carrying
amount of the related asset. The capitalized amount is depleted on a unit-of-production basis over the life of the associated proved
plus probable reserves. Periodic revisions to the liability specific discount rates, estimated timing of cash flows and/or to the original
estimated undiscounted costs can also result in changes to the decommissioning provision. The decommissioning provision is
increased each reporting period with the passage of time as an accretion of decommissioning provision expense is reported in finance
expenses and changes in the estimated future cash flows are capitalized. Actual costs incurred upon settlement of the provision are
recorded against the provision to the extent of the liability recorded and the remaining balance of the actual costs is recorded in the
statements of comprehensive income (loss).
CONSOLIDATED FINANCIAL STATEMENTS
2024
44
PINE CLIFF ENERGY LTD.
j)
Income taxes
Income tax comprises current and deferred taxes. Income tax is recognized in the statements of comprehensive income (loss) except
to the extent that it relates to items recognized in other comprehensive loss or directly in equity, in which the related income tax
expense or recovery is also recognized directly into other comprehensive loss or elsewhere in shareholders’ equity.
Current tax expense is the expected cash tax payable on the taxable income for the year, using tax rates enacted, or substantively
enacted, at the end of the reporting period, and any adjustment to tax payable in respect of previous years.
Deferred income tax is recognized based on temporary differences arising between the tax value of assets and liabilities and their
carrying amounts in the Financial Statements. Deferred tax liabilities are not recognized if they arise from the initial recognition of
goodwill and are not accounted for if they arise from the initial recognition of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither accounting nor taxable income. Deferred income tax is calculated on the
basis of the tax laws enacted or substantively enacted as at the reporting date and apply to when the related deferred income tax asset
is realized or the deferred income tax liability is settled. Current and deferred income tax assets and liabilities are offset when there
is a legally enforceable right to settle on a net basis and when such assets and liabilities relate to income taxes imposed by the same
taxation authority.
A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences to the extent that it is
probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each
reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.
k) Financial instruments
Financial instruments are measured at fair value on initial recognition of the instrument and are classified into one of the following
three categories: amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss
(“FVTPL”).
Accounts receivable is classified as financial assets at amortized cost and reported at amortized cost. A provision for impairment of
accounts receivable is established when there is evidence that the Company will not be able to collect all amounts due according to the
original terms of the receivables. Accounts payable and accrued liabilities, Term Loan, as defined herein, and Demand Loan, as defined
herein, are classified as financial liabilities at amortized cost.
Subsequent measurement of financial instruments is based on their initial classification. FVTPL financial instruments are measured
at fair value and changes in fair value are recognized in net income (loss). FVOCI financial instruments are measured at fair value and
changes in fair value are recognized in other comprehensive income (loss). The remaining categories of financial instruments are
recognized at amortized cost using the effective interest method.
l)
Net income (loss) per share
Basic per share amounts are calculated by dividing the income or loss attributable to holders of Common Shares by the weighted
average number of Common Shares outstanding during the reporting period.
Diluted per share amounts are calculated similar to basic per share amounts except that the weighted average Common Shares
outstanding are increased to include additional Common Shares from the assumed exercise of dilutive share options. The number of
additional outstanding Common Shares is calculated by assuming that the outstanding in-the-money share options were exercised and
that the proceeds from such exercises were used to acquire Common Shares at the average market price during the reporting period.
m) Finance expenses
Finance expenses are comprised of interest expenses and bank charges on borrowings and the accretion of decommissioning provision
and Term Loan. Interest expenses and bank charges are considered operating expenses on the statements of cash flows. All other
borrowing costs are recognized in income or loss. The capitalization rate used to determine the amount of borrowing costs to be
capitalized is the weighted average interest rate applicable to the Company’s outstanding borrowings during the period.
CONSOLIDATED FINANCIAL STATEMENTS
2024
45
PINE CLIFF ENERGY LTD.
4. FUTURE ACCOUNTING CHANGES
IFRS 18 Presentation and Disclosure in Financial Statements (“IFRS 18”)
In January 2024, the International Accounting Standards Board (“IASB”) issued amendments to IFRS 18 – Presentation and Disclosure
in Financial Statements, which introduce new presentation requirements for specified categories and defined subtotals in the
statements of comprehensive income (loss), as well as enhanced disclosure requirements for management-defined performance
measures. The amendments aim to improve comparability and transparency in financial reporting by requiring more structured and
consistent presentation of financial performance across entities.
The amendments to IFRS 18 will be effective for annual periods beginning on or after January 1, 2027, with earlier adoption permitted.
The Company is currently assessing the potential impact of these amendments on its Financial Statements.
5. FINANCIAL INSTRUMENTS
Financial instruments and fair value measurement
Financial instruments of the Company consist of accounts receivable, investments, accounts payable and accrued liabilities, Demand
Loan and Term loan. The carrying values of accounts receivable, accounts payable and accrued liabilities, Demand Loan and Term
Loan approximate their respective fair values due to the short time before maturing. The carrying value of the Term Loan approximates
its fair value due to its interest rates reflecting current market conditions. Investments are measured at fair value based on quoted
market prices.
Assets and liabilities that are measured at fair value are classified into levels, reflecting the method used to make the
measurements. Level 1 fair value measurements are based on quoted prices that are available in active markets for identical assets or
liabilities as of the reporting date. Active markets are those in which transactions occur in sufficient frequency and volume to provide
pricing information on an ongoing basis. Level 2 fair value measurements are based on pricing inputs other than quoted prices in
active markets included in Level 1. Prices are either directly or indirectly observable as of the reporting date. Level 2 valuations are
based on inputs, including quoted forward prices for commodities, time value and volatility factors, which can be substantially
observed or corroborated in the marketplace. Level 3 valuations are those with inputs for the asset and liability that are not based on
observable market data. Pine Cliff has no level 2 or level 3 financial instruments. Assessment of the significance of a particular input
to the fair value measurement requires judgement and may affect the placement within the fair value hierarchy level.
The following table sets out the Company’s classification, carrying value and fair value of financial assets and liabilities as at December
31, 2024 and December 31, 2023:
($000s)
December 31, 2024
December 31, 2023
Description
Carrying value
Fair value
Carrying value
Fair value
Accounts receivable
23,702
23,702
23,657
23,657
Investments
-
-
208
208
Accounts payable and accrued liabilities
(35,236)
(35,236)
(43,840)
(43,840)
Demand loan
(7,358)
(7,358)
(4,002)
(4,002)
Term loan
(49,153)
(49,153)
(55,023)
(55,023)
6. RISK MANAGEMENT
The Company is exposed to both financial and non-financial risks inherent in the oil and gas business. Financial risks include:
commodity prices, interest rates and foreign exchange, credit availability and liquidity. Financial risks can be managed, at least to a
degree, through the utilization of financial instruments. Certain non-financial risks can be mitigated through the use of insurance
and/or other risk transfer mechanisms, good business practices and process controls, while others must simply be borne.
The Company employs risk management strategies and policies to ensure any exposure to risk is consistent with the Company’s
business objectives and risk tolerance levels. Risk management is ultimately established by the Board of Directors and is implemented
by management. All risks can have an impact upon the financial performance of the Company.
Market Risk
Market risk is the risk that the fair value or future cash provided by operating activities of the Company’s financial instruments will
fluctuate because of changes in market prices. Components of market risk to which Pine Cliff is exposed are discussed below.
CONSOLIDATED FINANCIAL STATEMENTS
2024
46
PINE CLIFF ENERGY LTD.
Commodity Price Risk
The Company is exposed to commodity price risk since its revenues are dependent on the prices of crude oil, NGLs and natural gas.
Commodity prices have fluctuated widely during recent years due to global and regional factors including, but not limited to, supply
and demand, inventory levels, weather, economic changes and geopolitical factors. Changes in natural gas, crude oil and NGL prices
may have a significant effect, positively or negatively, on the ability of the Company to meet its obligations, capital spending targets
and expected operational results. A material decline or extended period of low natural gas, crude oil or NGL prices will result in a
reduction of net production revenue. The economics of producing from some wells may change because of lower prices, which will
result in reduced production of natural gas, crude oil or NGL prices and a reduction in the volumes of Pine Cliff’s reserves. Management
may also elect not to produce from certain wells at lower prices.
Physical Sales Contracts
Pine Cliff enters into physical delivery sales contracts to manage commodity price risk. These contracts are considered normal
executory sales contracts and are not recorded at fair value in the financial statements.
At December 31, 2024, the Company had the following physical natural gas sales contracts in place:
Contractual Term
Delivery
Point
Physical Delivery
Quantity (GJ/day)
Contract Price
($CAD/GJ)1
Contract Price
($CAD/Mcf)1,2
January 1, 2025 to March 31, 2025
AECO
10,000
$2.35
$2.47
January 1, 2025 to October 31, 2025
AECO
15,000
$2.54
$2.67
January 1, 2025 to December 31, 2025
AECO
5,000
$2.85
$2.99
January 1, 2025 to December 31, 2025
AECO
9,059
$3.56
$3.74
January 1, 2026 to February 28, 2026
AECO
8,398
$3.58
$3.76
January 1, 2025 to October 31, 2025
TransGas3
14,000
AECO 5A + 0.39/GJ
AECO 5A + 0.41/Mcf
April 1, 2025 to October 31, 2025
DAWN4
5,000
$3.74
$3.92
1 Prices reported are the weighted average prices of the periods.
2 Price has been converted from $/GJ to $/Mcf by multiplying by 1.05.
3 Subsidiary of SaskEnergy, Saskatchewan.
4 Dawn Hub into Dawn Township, Ontario.
Subsequent to December 31, 2024, the Company had the following additional physical natural gas sales contracts in place:
Contractual Term
Delivery
Point
Physical Delivery
Quantity (GJ/day)
Contract Price
($CAD/GJ)1
Contract Price
($CAD/Mcf)1,2
March 1, 2025 to December 31, 2025
AECO
2,500
$2.05
$2.15
April 1, 2025 to October 31, 2026
AECO
2,500
$2.45
$2.57
April 1, 2025 – March 31, 2026
AECO
5,000
$1.75 - $3.113
$1.84 - $3.273
1 Prices reported are the weighted average prices of the periods.
2 Price has been converted from $/GJ to $/Mcf by multiplying by 1.05.
3 Price is a floor and ceiling for a fixed price costless collar.
At December 31, 2024, the Company had the following physical crude oil sales contracts in place:
Contractual Term
Crude Oil
Physical Delivery Quantity
(Bbl/day)
Contract Price
($USD/Bbl)1
January 1, 2025 to December 31, 2025
WTI Fixed Price
472
$68.91
January 1, 2026 to February 28, 2026
WTI Fixed Price
435
$66.60
1 Prices reported are the weighted average prices of the periods.
Interest Rate Risk
Interest rate risk refers to the risk that the value of a financial instrument or funds flows associated with the instrument will fluctuate
due to changes in market interest rates. Interest rate risk arises from interest bearing financial assets and liabilities that the Company
uses. The principal exposure of the Company is on its borrowings which have a variable interest rate which gives rise to a funds flow
interest rate risk.
CONSOLIDATED FINANCIAL STATEMENTS
2024
47
PINE CLIFF ENERGY LTD.
At December 31, 2024, the Company’s debt facilities consist of a $49.2 million non-revolving first lien term loan (the “Term Loan”)
and a $15.0 million demand operating loan (the “Demand Loan”) with $7.4 million drawn, secured by specific equipment assets. The
borrowings under the Term Loan are at the Canadian Prime Rate plus 3.65%, (whereby Canadian Prime Rate cannot be less than
6.95%) and the Demand Loan is at the banks’ prime lending rate plus 2.0%.
Pine Cliff has not entered into any derivative financial instruments to manage this risk at this time.
Foreign Currency Exchange Risk
The Company is exposed to risk on foreign exchange rates because the commodity prices it receives are indirectly determined in
reference to United States dollar denominated commodity prices. The Company manages this risk by monitoring the foreign exchange
rate and evaluating its effect on cash provided by operating activities. Pine Cliff has not entered into any derivative financial
instruments to manage this risk at this time.
Sensitivity Analysis
Based on historic movements and volatilities in the interest rate markets and management’s current assessment of the financial
markets, the Company believes that a 1.0% variation in the Canadian prime interest rate is reasonably possible over a 12-month period.
A 1.0% increase in the Canadian prime lending rate would decrease both net and comprehensive income by $0.1 million, assuming the
change in interest rate is effective from the beginning of the year and the amount of the Term Loan and the Demand Loan as at
December 31, 2024.
A 1.0% decrease in the Canadian prime lending rate would increase both net and comprehensive income by $0.1 million, assuming the
change in interest rate is effective from the beginning of the year and the amount of the Term Loan and the Demand Loan as at
December 31, 2024.
Credit Risk
Credit risk is the risk that a third party will not complete its contractual obligations under a financial instrument and cause the
Company to incur a financial loss. Pine Cliff’s maximum exposure to credit risk is the sum of the carrying values of its accounts
receivable and cash, which reflect management’s assessment of the associated maximum exposure to such credit risk.
To mitigate the credit risk on its cash, the Company maintains its cash balances with a Canadian chartered bank. To mitigate the credit
risk on accounts receivable, Pine Cliff assesses the financial strength of its counterparties through internal evaluation and limiting
exposure to any one counterparty.
The Company’s accounts receivable balance at December 31, 2024 of $23.7 million (December 31, 2023 – $23.7 million), is primarily
with oil and gas marketers and joint venture partners and are subject to typical industry credit risks. Amounts due from these parties
have generally been received within 30 to 90 days. When determining whether amounts that are past due are collectible, management
assesses the creditworthiness and past payment history of the counterparty, as well as the nature of the past due amount. The
Company generally considers amounts greater than 90 days to be past due. As at December 31, 2024, there was $2.4 million (December
31, 2023 - $1.9 million) of accounts receivable over 90 days. Pine Cliff assesses its accounts receivable quarterly to determine if there
has been any impairment. During the year ended December 31, 2024, the Company recorded a bad debt recovery of $0.5 million
(December 31, 2023 – ($nil)) against accounts receivable.
Liquidity Risk
Liquidity risk is the risk that Pine Cliff will not be able to meet its financial obligations as they become due. Pine Cliff manages its
liquidity risk through actively managing its capital, which it defines as cash, debt and equity. Capital management strategies include
continuously monitoring forecasted and actual cash provided by (used in) operating, financing and investing activities and
opportunities to issue additional equity. Pine Cliff actively monitors its credit and working capital to ensure that it has sufficient
available funds to meet its financial requirements at a reasonable cost. Management believes that funds generated from these sources
currently will be adequate to settle Pine Cliff’s financial liabilities. After examining the economic factors that are causing the liquidity
risk facing the Company, the judgment applied to these factors, and the various initiatives that the Company has and will undertake to
strengthen its financial position, the Company believes it will have sufficient liquidity to support its ongoing operations and meet its
financial obligations as they come due for at least the next twelve months. A significant decline in commodity prices could hamper the
Company’s ability to rectify its working capital deficit and potentially require the Company to seek other sources of funding. If required,
Pine Cliff will also consider reducing its dividend, additional short-term financing or issuing equity in order to meet its future liabilities.
Any of these events could affect Pine Cliff’s ability to fund ongoing operations.
CONSOLIDATED FINANCIAL STATEMENTS
2024
48
PINE CLIFF ENERGY LTD.
The following table details the contractual maturities of Pine Cliff’s financial liabilities as at December 31, 2024:
2025
2026
2027
2028
2029
Thereafter
($000s)
Accounts payable and accrued liabilities
35,236
-
-
-
-
-
Demand loan
7,358
-
-
-
-
-
Term loan1
16,376
42,397
-
-
-
-
Lease obligations1
1,418
1,223
622
299
88
-
Total financial liabilities
60,388
43,620
622
299
88
-
1 These amounts include the notional principal and interest payments.
7. PROPERTY, PLANT AND EQUIPMENT
Cost:
($000s)
Balance at December 31, 2022
695,955
Additions
20,932
Right-of-use assets
966
Acquisitions
136,914
Dispositions
(2,455)
Decommissioning provision
37,809
Balance at December 31, 2023
890,121
Additions
2,529
Right-of-use assets
1,479
Acquisitions
645
Dispositions
(3,069)
Decommissioning provision
(41,528)
Balance at December 31, 2024
850,177
Accumulated depletion and depreciation:
($000s)
Balance at December 31, 2022
(445,910)
Depletion and depreciation
(43,928)
Dispositions
2,012
Balance at December 31, 2023
(487,826)
Depletion and depreciation
(53,669)
Impairment
(7,000)
Dispositions
770
Balance at December 31, 2024
(547,725)
Carrying value at:
($000s)
December 31, 2023
402,295
December 31, 2024
302,452
On December 19, 2024, the Company disposed of a non-operated working interest in underutilized gas processing infrastructure in
the Central CGU for total consideration of $7.0 million. The carrying value of the disposed asset was $nil and the gain on disposition is
recorded in the consolidated statements of income (loss) for the year ended December 31, 2024.
PP&E Impairment Assessment
As at December 31, 2024, the Company had three CGU’s being the Southern CGU, Central CGU and Edson CGU. In accordance with IFRS,
an impairment test is performed if the Company identifies indicators of impairment at the end of a reporting period. At December 31,
2024, the Company determined that an indicator related to future commodity prices was present. The Company prepared estimates
of the FVLCD for each CGU. When it is determined that any CGU’s carrying value exceeds its recoverable amount, that CGU is considered
impaired, and an impairment expense is reported that equals this excess.
CONSOLIDATED FINANCIAL STATEMENTS
2024
49
PINE CLIFF ENERGY LTD.
The following table outlines forecast benchmark prices and exchange rates used in the Company’s impairment test as at December 31,
2024:
WTI Crude
Oil1
Edmonton
Light
Crude Oil1
Edmonton
Cond &
Natural
Gasolines1
Edmonton
Ethane1
Edmonton
Propane1
Edmonton
Butanes1
Alberta
AECO Spot
Price1
$US to $C
Exchange
Rate1
Year
$US/Bbl
$C/Bbl
$C/Bbl
$C/Bbl
$C/Bbl
$C/Bbl
$C/MMBtu
2025
71.58
94.79
100.14
7.54
33.56
51.15
2.36
0.712
2026
74.48
97.04
100.72
10.76
32.78
49.99
3.33
0.728
2027
75.81
97.37
100.24
11.32
32.81
50.16
3.48
0.743
2028
77.66
99.80
102.73
12.02
33.63
51.41
3.69
0.743
2029
79.22
101.79
104.79
12.26
34.30
52.44
3.76
0.743
2030
80.80
103.83
106.86
12.51
34.99
53.49
3.83
0.743
2031
82.42
105.91
109.01
12.77
35.69
54.56
3.91
0.743
2032
84.06
108.03
111.19
13.03
36.40
55.65
3.99
0.743
2033
85.74
110.19
113.42
13.30
37.13
56.76
4.07
0.743
2034
87.46
112.39
115.69
13.57
37.87
57.90
4.15
0.743
2035
89.21
114.64
118.00
13.84
38.63
59.05
4.23
0.743
2036
90.99
116.93
120.36
14.12
39.40
60.24
4.32
0.743
2037
92.81
119.27
122.77
14.40
40.19
61.44
4.40
0.743
2038
94.67
121.65
125.23
14.69
41.00
62.67
4.49
0.743
2039
96.56
124.09
127.73
14.98
41.82
63.92
4.58
0.743
Thereafter
+2%/year
+2%/year
+2%/year
+2%/year
+2%/year
+2%/year
+2%/year
0.743
1 Source: Average of three independent consultant price forecasts, effective January 1, 2025 (McDaniel & Associates Consultants Ltd., GLJ Petroleum
Consultants Ltd. and Sproule Associates Limited).
The recoverable amounts of each of the Company’s CGU’s at December 31, 2024 were estimated at their FVLCD, based on the net
present value of discounted future cash flow from operating activities from oil and gas reserves as estimated by the Company’s
independent reserves evaluator at December 31, 2024. The FVLCD used to determine the recoverable amounts are classified as Level
3 fair value measurements as certain key assumptions are not based on observable market data, but rather, management’s best
estimates.
The Company used a pre‐tax 15% discount rate for the December 31, 2024 impairment test which took into account risks specific to
the CGU’s and inherent in the oil and gas business.
The following CGU was impaired as at December 31, 2024:
CGUs
2024
2023
Edson
7,000
-
Total Impairment
7,000
-
The impairment test of PP&E at December 31, 2024 concluded that the carrying amount of the Edson CGU of $25.3 million exceeded
its fair value less costs of disposal of $18.3 million. The full amount of the impairment was attributed to PP&E and, as a result, a total
impairment loss of $7.0 million was recorded in impairment expense. The impairment expense in 2024 was primarily a result of
negative pricing revisions in reserves at December 31, 2024, compared to December 31, 2023.
CONSOLIDATED FINANCIAL STATEMENTS
2024
50
PINE CLIFF ENERGY LTD.
8. LEASE LIABILITIES
Pine Cliff had the following future commitments associated with its lease liabilities:
As at December 31,
($000s)
2024
2023
2024
-
1,252
2025
1,418
1,082
2026
1,223
819
2027
622
229
2028
299
7
2029
88
-
Total lease payments as at December 31
3,650
3,389
Amounts representing interest
(337)
(275)
Present value of lease payments
3,313
3,114
Current portion of lease obligations
(1,287)
(1,119)
Non-current portion of lease obligations
2,026
1,995
For the year ended December 31, 2024, interest expense of $0.2 million (December 31, 2023 - $0.2 million) and a total cash outflow of
$2.0 million (December 31, 2023 - $1.1 million) was recognized relating to lease obligations.
The right-of-use assets and lease obligation relates to the Company's vehicle and head office lease in Calgary. A right-of-use asset of
$9.7 million (December 31, 2023 - $8.2 million) and $6.6 million (December 31, 2023 - $5.4 million) in accumulated depreciation on
the right-of-use-assets are included in PP&E. Refer to Note 7.
9. DEFERRED INCOME TAXES
Income tax expense differs from that which would be expected from applying the effective Canadian federal and provincial tax rates
to income before income taxes as follows:
Years ended December 31,
2024
2023
Income (loss) before income taxes
(27,238)
2,559
Corporate income tax rate
23.2%
23.5%
Computed income tax expense (recovery)
(6,325)
601
Non-deductible compensation expense
693
677
Non-taxable portion of gain on disposition
(813)
-
Other non-deductible (deductible) expenses
(291)
-
Impact of difference in tax rates
720
-
Changes in the unrecognized deferred tax assets
(92)
(7,139)
Return to provision true-up
316
(701)
Deferred income taxes
(5,792)
(6,562)
The Company has recorded a deferred tax asset of $49.4 million (December 31, 2023 - $43.6 million) related to the benefit of tax pools,
as it is probable they will be recovered.
As at December 31,
Deferred income tax assets
2024
2023
Share issue costs
457
1,116
Other
501
265
Decommissioning provision
53,836
63,716
Property and equipment
(17,877)
(31,009)
Lease liabilities
769
732
Capital losses carried forward
229
661
Non-capital losses carried forward
28,610
25,352
Asset before unrecognized deferred income tax
66,525
60,833
Less: unrecognized deferred income tax asset
(17,150)
(17,242)
Net deferred income tax asset
49,375
43,591
Pine Cliff has approximately $352.4 million in tax pools as at December 31, 2024 (December 31, 2023 - $388.0 million), available for
future use as deductions from taxable income. Included in the Company’s tax pools are estimated non-capital loss carry-forwards of
$123.2 million (December 31, 2023 - $108.6 million) that expire between the years 2032 and 2044.
CONSOLIDATED FINANCIAL STATEMENTS
2024
51
PINE CLIFF ENERGY LTD.
The Company had the following tax pools, including non-capital loss carry-forwards, at December 31, 2024:
Category of tax pool ($000s)
Rate of Utilization (%)
As at December 31,
2024
Undepreciated capital costs
7 - 55
28,855
Canadian oil and gas property expenditures
10
171,106
Canadian development expenditures
30
25,124
Canadian exploration expenditures
100
156
Share issue costs
20
1,970
Non-capital losses carried forward1
100
123,202
Capital losses carried forward2
1,975
Total
352,388
1 Non-capital losses expire between the years 2032 and 2044.
2 The capital losses carried forward can only be claimed against taxable capital gains.
10. TERM LOAN
On December 13, 2023, the Company entered into a three-year first lien, non-revolving term loan facility. The amounts borrowed under
the Term Loan bear interest at an annual interest rate equal to Canadian Prime Lending Rate (the “Prime Rate”) plus 3.65%, where
Prime Rate cannot be less than 6.95%. The Company is required to make mandatory principal quarterly repayments equal to $2.1
million, payable on the first banking day of January, April, July and October of each calendar year, commencing April 1, 2024. The Term
Loan has a maturity date of December 13, 2026 on which date the remaining outstanding principal balance is to be paid.
On March 27, 2024, the Term Loan was amended pursuant to the first amending agreement (the “First Amendment”), whereby the
mandatory principal quarterly repayment due on March 31, 2024, was deferred until March 31, 2025 (the “Deferred Payment”). The
Deferred Payment may be repaid on the last banking day of any calendar month before March 31, 2025, along with any accrued and
unpaid interest and fees. In accordance with the First Amendment, the Company incurred an amendment fee of $0.5 million and will
incur a monthly fee of $0.05 million until the Deferred Payment is fully repaid.
On November 29, 2024, the Term Loan was amended pursuant to the second amending agreement (the “Second Amendment”),
which extended the maturity date of the CWB Credit Facilities from November 30, 2024, to April 30, 2025. In connection with the
Second Amendment, the Company incurred an amendment fee of $0.1 million, which was deemed fully earned on the date of the
agreement and became payable on December 6, 2024.
On December 19, 2024, the Company entered into the third amending agreement which introduced new amortization requirements
associated with the disposition of a non-operated working interest in underutilized gas processing infrastructure, mandating that,
beginning January 2025, if the Company or its subsidiaries make a distribution (including dividends to shareholders), an additional
principal repayment equal to 15% of the distribution amount is to be made on the last banking day of that month. This repayment
requirement remains in effect while either of the following conditions exists:
•
Consolidated Debt to EBITDA Ratio is greater than or equal to 1.0:1.0; or
•
Consolidated Debt to next-twelve-months EBITDA Ratio is greater than or equal to 1.0:1.0.
The Company shall not have the right to make an optional prepayment of the outstanding principal balance until after December 12,
2025, which shall include an amount of 1.5% of the principal amount prepaid, except for the following one-time optional prepayments:
(i)
as a one-time option on March 12, 2025, make a prepayment of all or any portion of the outstanding principal balance
plus an amount of 4% of the principal amount prepaid; provided that such outstanding principal balance to be prepaid
is not less than 15% of the outstanding principal balance under the Term Loan immediately prior to such partial
prepayment; and
(ii)
as a one-time option on June 12, 2025, make a prepayment of all or any portion of the outstanding principal balance plus
an amount of 3% of the principal amount prepaid; provided that such outstanding principal balance to be prepaid is not
less than 15% of the outstanding principal balance under the Term Loan immediately prior to such partial prepayment.
The amount drawn under the Term Loan at December 31, 2024 was $49.2 million (December 31, 2023 – $56.3 million). Based on the
calculated fair value of the Term Loan as at December 31, 2024, the effective interest rate was determined to be 12.5% using the
effective interest method. The value of the loan will be accreted up to the principal balance at maturity. Interest accrued at December
31, 2024 was $nil (December 31, 2023 - $0.3 million).
Security for the Term Loan consists of floating demand debentures totaling $110.0 million (December 31, 2023 - $110.0 million) over
all of the Company’s assets and a general security agreement with first priority ranking over all personal and real property other than
field facilities with the Demand Loan.
CONSOLIDATED FINANCIAL STATEMENTS
2024
52
PINE CLIFF ENERGY LTD.
The Company is subject to certain financial covenants under its Term Loan as follows:
•
Consolidated Debt, as defined herein, to EBITDA, as defined herein, ratio shall not exceed 1:5:1.0; and
•
Asset Coverage ratio, as defined herein, of not less than 1.5:1.0.
Consolidated Debt is defined as all indebtedness for borrowed money, including issued and drawn letters of credit or letters of
guarantee other than letters of credit supported by a performance guarantee from Export Development Canada. EBITDA is defined as
net income (loss) for the trailing twelve-month period excluding finance costs, provision for current and deferred income tax, depletion
and depreciation, share option compensation and gain or loss on sale of assets and impairment of assets, less cash taxes paid and
decommissioning expenses incurred during the period.
Asset Coverage ratio is defined as the proved developed producing reserves of the Company (before income tax, discounted at 10%),
as evaluated by an independent third-party engineering report and evaluated on strip commodity pricing, divided by the consolidated
borrowings of the Company at December 31 of the calendar year. The ratio is calculated and revaluated for strip pricing at June 30
period end, based on an internally prepared engineering report.
The Company was in compliance with its Term Loan covenants at December 31, 2024.
11. DEMAND LOAN
On November 29, 2024, the Company’s Demand Loan with a Canadian chartered bank was temporarily increased to $15.0 million
from $12.0 million, reducing to a permanent amount of $12.0 million, effective April 30, 2025, at which time, the utilization of the
Demand Loan can be restricted to 70% at the end of each calendar quarter so long as the Company is a dividend payer. Borrowings
bear interest at the bank’s prime lending rate plus 2.0%. There was $7.4 million drawn at December 31, 2024 (December 31, 2023 -
$4.0 million). Letters of credit issued under the Demand Loan are supported by a performance guarantee from Export Development
Canada for an amount up to $6.7 million and incur an issuance fee of 2.38%. At December 31, 2024, the Company had issued $6.6
million in letters of credit (December 31, 2023 - $0.8 million).
The Demand Loan is secured by a general security agreement over certain tangible field facilities of the Company.
The Company is subject to the following financial covenant under its Demand Loan:
•
Senior Debt, as defined herein, to Net EBITDA, as defined herein, ratio shall not exceed 3.0:1.0 at the end of each quarter-
end.
Senior Debt is defined as any secured indebtedness for borrowed money. Net EBITDA shall mean net income (loss) excluding finance
costs, provision for current and deferred income tax, depletion and depreciation, share option compensation and gain or loss on sale
of assets and impairment of assets, less cash taxes and dividends paid, on a trailing twelve-month basis.
The Company was in compliance with its Demand Loan covenant at December 31, 2024.
12. DECOMMISSIONING PROVISION
The total current and long-term decommissioning provision of $231.9 million was estimated by management based on the Company’s
working interest and estimated costs to remediate, reclaim and abandon its wells, pipelines, and facilities and estimated timing of the
costs to be incurred in future periods.
At December 31, 2024, the estimated total undiscounted and uninflated amount required to settle the decommissioning liabilities was
$323.8 million (December 31, 2023 - $327.3 million). The discounted and inflated amount required to settle the decommissioning
liabilities of $231.9 million has been calculated assuming a 2.00% inflation rate (December 31, 2023 – 2.00%) and discounted using
an average risk-free interest rate of 3.24% (December 31, 2023 – 3.08%). These obligations are currently expected to be settled based
on the useful lives of the underlying assets, some of which extend beyond 50 years into the future.
CONSOLIDATED FINANCIAL STATEMENTS
2024
53
PINE CLIFF ENERGY LTD.
($000s)
Decommissioning provision, January 1, 2023
208,387
Increase in liabilities relating to development activities
136
Provisions related to acquisitions
27,588
Decommissioning expenditures
(9,493)
Changes in estimates and discount rates
37,673
Accretion
6,874
Decommissioning provision, December 31, 2023
271,165
Provisions related to acquisitions and dispositions
(354)
Decommissioning expenditures
(6,369)
Changes in estimates and discount rates
(41,169)
Accretion
8,594
Decommissioning provision, December 31, 2024
231,867
Less current portion of decommissioning provision
(7,500)
Non-current portion of decommissioning provision
224,367
13. SHARE CAPITAL
Authorized
The Company is authorized to issue an unlimited number of Common Shares without nominal or par value. Common Shares carry one
vote per share and the right to any dividends declared. The Company is also authorized to issue, in one or more series, an unlimited
number of Class B Preferred Shares without nominal or par value.
Issued and outstanding
Issued and outstanding share capital continuity:
Common Shares
(000s)
Share capital
($000s)
Balance, January 1, 2023
350,909
277,650
Exercise of stock options
5,389
973
Balance, December 31, 2023
356,298
278,623
Exercise of stock options
1,802
359
Balance, December 31, 2024
358,100
278,982
Stock Options
The Company provides an equity settled stock option plan (the “Option Plan”) for its directors, employees and consultants. Under the
Option Plan, the Company may grant stock options up to 10% of outstanding Common Shares on the grant date. The term and vesting
period of the options granted are determined at the discretion of the Company’s Board of Directors. The exercise price of each option
granted equals the market price of the Common Shares immediately preceding the date of grant and the option’s maximum term is five
years.
Stock options issued and outstanding:
Options
(000s)
Weighted-average
exercise price
($ per Common
Share)
Outstanding, January 1, 2023
18,324
0.87
Granted
11,603
1.32
Exercised
(6,291)
0.24
Expired
(596)
1.03
Forfeited
(2,335)
1.13
Outstanding, December 31, 2023
20,705
1.28
Granted
12,971
1.04
Exercised
(2,504)
0.31
Expired
(1,703)
1.88
Forfeited
(2,213)
1.32
Outstanding, December 31, 2024
27,256
1.22
Exercisable, December 31, 2024
6,098
0.41
CONSOLIDATED FINANCIAL STATEMENTS
2024
54
PINE CLIFF ENERGY LTD.
Exercise price:
Stock options
outstanding
(000s)
Weighted-average
remaining term
(years)
Stock options
exercisable
(000s)
Weighted-average
remaining term
(years)
$0.33 - $0.99
1,102
0.4
1,102
0.4
$1.00 - $1.25
12,275
2.4
-
-
$1.26 - $1.50
10,445
1.5
3,297
0.4
$1.51 - $1.92
3,434
0.9
1,699
0.4
27,256
1.8
6,098
0.4
The Company records share-based compensation expense over the vesting period, based on the fair value of the options granted to
employees, directors and consultants. Typically, one third of the stock options granted vest annually on the first, second, and third
anniversaries of the grant date and expire one year after each respective vesting date. During the year ended December 31, 2024, the
Company granted 12,970,857 stock options (December 31, 2023 – 11,603,180) with a fair value of $0.26 (December 31, 2023 - $0.34)
per option using the Black-Scholes option pricing model using the following key assumptions:
Years ended December 31,
Assumptions (weighted average):
2024
2023
Exercise price ($)
1.04
1.32
Estimated volatility of underlying Common Shares (%)
48.3
61.5
Expected life (years)
3.0
3.0
Risk-free rate (%)
4.0
3.8
Forfeiture rate (%)
8.7
7.5
Expected dividend yield (%)
6.1
9.8
Estimated volatility is measured as the standard deviation of expected share price returns based on statistical analysis of historical
daily share prices for a representative period.
Per Share Calculations
The average market value of the Common Shares for the purposes of calculating the dilutive effect of stock options was based on quoted
market prices for the period that the options were outstanding.
Years ended December 31,
Net income (loss) per share calculation ($000s):
2024
2023
Numerator
Net income (loss) for the year
(21,446)
9,121
Denominator (000s)
Weighted-average Common Shares outstanding – basic
357,375
354,057
Dilutive effect of options outstanding
-
5,318
Weighted-average Common Shares outstanding – diluted
357,375
359,375
Net income (loss) per Common Share – Basic and diluted ($)
(0.06)
0.03
Dividends declared and paid for the year ended December 31, 2024 were $25.6 million (December 31, 2023 - $46.0 million) or $0.07
per Common Share ($0.13 per Common Share for the year ended December 31, 2023).
14. COMMODITY SALES
The Company’s commodity sales revenue is determined pursuant to the terms of the marketing agreements. The revenue for natural
gas, crude oil and NGLs is based on the commodity price in the month of production, adjusted for quality, location, allowable
deductions, if any, or other factors. Commodity sales revenues are based on marketed indices that are determined on a monthly or
daily basis.
Years ended December 31,
($000s)
2024
2023
Natural gas
90,674
117,432
Crude oil
50,110
42,271
NGLs
49,334
29,149
Total commodity sales
190,118
188,852
CONSOLIDATED FINANCIAL STATEMENTS
2024
55
PINE CLIFF ENERGY LTD.
15. SUPPLEMENTAL CASH FLOW INFORMATION
Years ended December 31,
2024
2023
Changes in non-cash working capital:
Accounts receivable
(45)
3,530
Prepaid expenses and deposits
1,599
(3,554)
Accounts payable and accrued liabilities
(8,604)
14,200
(7,050)
14,176
Change related to:
Operating activities
(7,853)
17,780
Financing activities
1,571
-
Investing activities
(768)
(3,604)
(7,050)
14,176
Years ended December 31,
Finance expenses:
2024
2023
Interest expense and bank charges
8,345
733
Non cash:
Accretion on decommissioning provision
8,594
6,874
Accretion on promissory notes and term loan/term debt
460
23
Total finance expenses
17,399
7,630
Cash interest paid in the year ended December 31, 2024, was $8.4 million (December 31, 2023 - $0.2 million).
16. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses by nature were as follows:
Years ended December 31,
General and administration expenses:
2024
2023
Salary and benefits
9,169
7,312
Administrative and other costs
4,207
3,607
Overhead recoveries
(3,076)
(3,424)
Total general and administrative expenses
10,300
7,495
17. KEY MANAGEMENT RENUMERATION
Key management personnel are those persons, including all directors and officers, having authority and responsibility for planning,
directing and controlling the activities of the Company. In addition to their salaries, the Company also provides short-term cash
benefits and its directors and officers also participate in the Option Plan. Director and officer compensation was as follows:
Years ended December 31,
Key management remuneration:
2024
2023
Short-term benefits1
2,219
2,053
Share-based compensation2
1,408
1,265
Total key management remuneration
3,627
3,318
1 Short-term benefits includes the salary and short-term cash benefits and directors fees paid to the Company’s officers and directors.
2 Share-based compensation computed for officers and directors are included in note 13 and include the fair value of awards expensed in the year.
18. RELATED PARTY TRANSACTIONS
During the year-ended December 31, 2024, Pine Cliff paid $0.1 million for fees related to a transaction to an entity related to a director
of the Company.
CONSOLIDATED FINANCIAL STATEMENTS
2024
56
PINE CLIFF ENERGY LTD.
19. COMMITMENTS
As at December 31, 2024, the Company has the following commitments and other contractual obligations:
2025
2026
2027
2028
2029
Thereafter
($000s)
Accounts payable and accrued liabilities
35,236
-
-
-
-
Demand loan
7,358
-
-
-
-
Term loan1
16,376
42,397
-
-
-
Lease obligations1
1,418
1,223
622
299
88
-
Transportation2
11,232
8,369
6,179
1,983
1,258
384
Total commitments and contingencies
71,620
51,989
6,801
2,282
1,346
384
1 These amounts include the notional principal and interest payments.
2 Firm transportation agreements.
20. CAPITAL STRUCTURE
The Company’s objectives when managing capital, which the Company defines to include shareholders’ equity and positive net
cash/net debt, is to ensure that it has the financial capacity, liquidity and flexibility to fund its capital program and acquisitions. As it
is not unusual for capital expenditures and acquisitions to exceed cash flow provided by (used in) operating activities in a given period,
the Company is required to maintain financial flexibility and liquidity to maintain an optimal capital structure to reduce the cost of
capital. In order to maintain or adjust the capital structure, the Company may issue debt, Common Shares or a combination thereof
and make adjustments to its capital investment and dividend programs.
The Company defines and computes its positive net cash/net debt as follows:
($000s)
December 31, 2024
December 31, 2023
Accounts receivable
23,702
23,657
Prepaid expenses and deposits
5,722
7,321
Investments
-
208
Less:
Accounts payable and accrued liabilities
(35,236)
(43,840)
Term loan
(49,153)
(55,023)
Demand loan
(7,358)
(4,002)
Net debt
(62,323)
(71,679)
Equity
54,324
99,928
The Company’s cash provided by (used in) operating activities is expected to provide the necessary capital for oil and gas exploration
and development activities. However, due to the potential impact of adverse changes in commodity prices, production rates, capital
efficiencies and service costs, the Company may not generate sufficient cash provided by operating activities to entirely fund its
planned oil and gas capital programs or future acquisitions. Accordingly, the Company will continually evaluate the stage of
development of its proved and producing reserves and the expected return on investment of acquisitions and consider issuing equity
and/or debt or amend its dividend to provide additional financing to maintain appropriate net debt and equity levels.
The Company considers adjusted funds flow to be a key performance measure as it demonstrates the Company’s ability to generate
funds necessary to fund future growth through capital investment, to pay dividends and where necessary repay debt. Net debt-to-
adjusted funds flow is computed as follows:
As at December 31,
Net debt-to-adjusted funds flow calculation:
2024
2023
Cash provided by operating activities
23,795
66,627
Changes in non-cash working capital
7,853
(17,433)
Decommissioning obligations settled in cash
6,369
9,493
Adjusted funds flow
38,017
58,687
Net debt
(62,323)
(71,679)
Net debt-to-adjusted funds flow
1.6
1.2
CONSOLIDATED FINANCIAL STATEMENTS
2024
57
PINE CLIFF ENERGY LTD.
The Company’s financial objectives and strategy as described above have remained substantially unchanged over the reporting
periods. These objectives and strategy are reviewed on an annual basis.
21. SUBSEQUENT EVENTS
Dividends
On January 31, 2025 and February 28, 2025, the Company paid a monthly dividend of $0.005 per Common Share.
On March 5, 2025, the Company declared a monthly dividend of $0.005 per Common Share. The dividend is payable March 31, 2025,
to all shareholders of record on March 14, 2025.
CORPORATE INFORMATION
2024
58
PINE CLIFF ENERGY LTD.
BOARD OF DIRECTORS
REGISTRAR AND TRANSFER AGENT
William S. Rice – Chairman
Odyssey Trust Company of Canada
Hilary A. Foulkes
Robert B. Fryk
AUDITORS
Philip B. Hodge
Deloitte LLP
Calvin B. Jacober
Jacqueline R. Ricci
STOCK LISTINGS
Toronto Stock Exchange (“TSX”)
OFFICERS
Trading Symbol: PNE
Philip B. Hodge
President and Chief Executive Officer
OTC Markets Group Inc. (“OTCQX”)
Terry L. McNeill
Trading Symbol: PIFYF
Chief Operating Officer
Kristopher B. Zack
WEBSITE
Chief Financial Officer and Corporate Secretary
www.pinecliffenergy.com
Daniel C. Keenan
Vice President Exploitation
INVESTOR CONTACT
Austin W. Nieuwdorp
info@pinecliffenergy.com
Vice President Finance and Controller
HEAD OFFICE
850, 1015 – 4th Street SW
Calgary, Alberta T2R 1J4
Phone: (403) 269-2289
Fax: (403) 265-7488